Today was light on economic data, although some will point to the Chicago Purchasing Managers Index as the reason for the decline in equities. The index fell to 56.2; the lowest reading since September 2009. A reading above 50 indicates expansion. This tells a similar story to that of data released last week: growth, but at a slower pace. Given the context, weak domestic data is currently being priced in. My impression of today was a natural sell-off after last week’s bullish activity. The most important question of the day was: how do you want to be positioned in front of the significant amount data to be released later this week.
Treasurys closed off their highs of the day and there was additional selling in TLT after the bond market closed. The SPX also closed off its lows. The yield on the 10 Year Note will likely need to rise to >2% in order for the equity rally to be sustained. I expect some more sideways-to-slightly-negative movement tomorrow as this week’s releases are initially digested.
The major headwind facing equities is still the European economic situation, which will be addressed, to a major extent, early Wednesday morning with the release of Germany’s PMI. Should equities react favorably, we are likely to see another strong finish to the week in the SPX. There is major support to the SPX under 1390, and then again under 1383. If one or both of those opportunities present, I will be a buyer of equities.