Disappointing Economic Data Weighs On Stocks

The market is lower in early trading on many of the same concerns as well as a fresh dose of economic data that came in below expectations.

The ADP Employment report showed private payrolls increased by 133,000 during May, but that was below forecasts for 157,000.  The ADP report hasn't been the best indicator of the govt. jobs report on Friday, but forecasts seem to be coming down for that report as well.

A revised reading for Q1 GDP came in at +1.9%, which is below the +2.2% preliminary reading.  Separately, the Chicago PMI index fell to 52.7 in May from 56.2 last month.

In corporate news, many retailers are reporting same-store sales figures for last month.  Of the reports I've seen, I'd say that more retailers beat expectations than fell short, but the reactions in the underlying stocks are mixed.

Stocks rising on SSS reports: COST, ZUMZ, SKS, TGT, TJX, ROST

Stocks falling on SSS reports: KSS, JWN, GPS, BKE

Among the sector ETFs, energy stocks are down the most again while defensive consumer staples and utilities are down the least.  But every sector is lower this morning. 

The dollar is higher again while commodities are moving lower.  Gold prices are down near $1560, but were able to reverse higher during yesterday's session.  Oil prices are lower to $86.50.  Has anyone started to see lower gas prices yet?

The 10-year yield is a disaster, breaking to new generational lows at 1.54%.  The only silver lining I suppose could be another wave of refis, but I would think most people have already refi'd.

As for the VIX, it has now broken out to new monthly highs and is currently +5% higher to 25.30.  So fear is building in the market.  The VIX hasn't been at these levels since December 2011.

Trading comment: The SPX is testing the 1300 level, which is an important round number, but the big line in the sand is SPX 1292.  That markets the lows from a couple of weeks ago from where the market bounced.  A break of those levels opens the door to further downside.  Bearish sentiment is on the rise, but not yet at extreme levels.  If SPX 1292 gives way, I would expect selling to accelerate and for pessimism in the sentiment indicators to spike.  That could offer a better setup for a tradeable bottom.  But we are not there yet so I want to stay defensive for now.

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New Lows For Bond Yields Don't Inspire Confidence

The markets are down sharply in early trading after yesterday's low volume bounce.  There are no specific news items per se, but the general concerns out of Europe that were absent from yesterday's trading are back on the front burner today.

Yields on sovereign debt are on the rise as concerns about the financial conditions in the eurozone resurface.  Italy and Spain are the bond markets folks are watching.  Greek yields have already been extraordinarily high.

The opposite is occurring here in the US (and in Germany), where bond yields have moved to new generational lows.  The 10-year yield has broken recent support levels near 1.70% and plunged to 1.64% today.  Those are the lowest yields in my lifetime, and they are not a good indicator for the health of the US economy.  While bonds are being affected by a global flight to safety, a healthy outlook for our economy would normally correspond to higher yields in the bond market.

The dollar is also rallying in this flight-to-safety trade, and pushing the euro to new lows.  The dollar is nearing a 2-year high.  This is also weighing on commodities.  Oil prices have fallen to $88, gold prices are lower near $1540, and silver and copper prices are down as well.

In economic news, pending home sales for April unexpectedly fell -5.5%.  That's a big drop, and has taken some wind out of the sails of folks who have been pointing to a bottom in the housing market.

As for the VIX, I wrote yesterday that it was not a good sign that the VIX wasn't moving lower on the big rally yesterday.  Today shows why folks were skeptical.  The VIX is up over 11% to 23.42.  For the last few weeks the VIX has been trading within the 20-25 range.  Let's see if the upper end of that range holds next time we get there.

Trading comment: Yesterday's bounce came on very low volume.  That's not what the bulls want to see.  Bulls want to see rallies accompanied by rising volume, which has been missing of late.  And while the eurozone news was absent from yesterday's headlines, it looks like just a brief one-day reprieve.  I had been looking for the S&P 500 to rally at least into the 1340-1360 range.  If the market can reverse today's losses into the close, we still might have a chance.  But if we close near the lows for the day, then I think yesterday's high near SPX 1335 might be the high for the bounce in the short-term.  Right now there are just a lot of headwinds for the market and it is understandably having difficulty making headway.

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As the Channel Churns: The Battle for Routes to Market

High tech channels are restructuring due to the emergence and convergence of social, mobile, big data, and cloud based solutions. These forces are expected to cause a substantial churn in the channel. IDC predicts turnover of 25,000 to 50,000 infrastructure partners in North America by the end of 2013. This is a major wake up call for high tech channel marketers. Three years from now your channel community, the solutions they sell, and the most profitable routes to market will be very different than they are today. Vendors that see a net gain in channel capacity over this time frame will be the ones who diligently accomplish the following three objectives:

1. Redefine relationships: Vendors will need to be both more strategic and more tactical in support of their channel. The business planning process must incorporate strategic issues such as helping partners acquire new skills, building partner networks, funding acquisitions, and driving multi-vendor alliances into the channel.

At the tactical level, vendors need to help partners clearly understand how to best invest in their business. This requires compelling evidence of return on investment. For some partners the highest ROI will come from hiring more technical staff or achieving certifications. For others it may be hiring sales reps or doing more marketing. Partner engagement hangs in the balance and it is up to vendors to make the case for each and every partner.

2. Reposition programs: Channel marketers need to think of their marketing programs as solutions to partner business problems. Typically channel programs are marketed like products with the benefits presumed to be self-evident. Not so. Even the most elegantly packaged program offerings are not relevant to a partner until they understand what business objectives it is designed to achieve for them – Building awareness? Lead generation? Appointment setting? Customer loyalty/upsell? Vendors must reposition programs as solutions that are:

• Tied directly to partners' business goals 
• Designed as sustainable campaigns – not short term marketing hits 
• Easily linked to funding programs such as MDF, JDF, co-marketing, etc. 
• Provide execution support through portal capabilities, concierge services, and references to approved marketing services firms

3. Reskill for analytics:Data analytics will be the differentiating factor for the winners and losers in the battle for channel capacity. This will require staffing up on business analysts and capturing better marketing and sales data from partners. Vendors whose products or business models provide end customer touch points such as SaaS or hardware provisioning have a big advantage in this regard. Competitors need to seriously think about how they can incorporate end customer touch points into their offerings. The importance of this cannot be overstated - it closes the loop on the lead qualification, distribution, nurturing and sales cycles enabling continuous improvement to be applied to all of those critical functions.

Not all go to market models in high tech support end customer touch points for vendors. With this in mind, some of the new ways vendors are attempting to get closer to the data include:

• App level connectors between vendor partner relationship management (PRM) portals and partner CRM systems
• Requiring campaign and lead performance reporting as part of funding approval processes
• Enticing customer contact through SaaS, communities, incentive programs, etc.

Customers want their applications, infrastructure, platforms, and communications to work seamlessly with legacy solutions as well as with customers' multi-screen environments. They expect rapid deployment, mobile readiness, low cost, high availability, flexibility, and return on investment. These requirements can only be met if vendors restructure their offerings and their channels to bring a widening set of specialized technology and expertise together into standardized offerings customers can trust. For more on the future of high tech channel marketing, see: Best Practices in Channel Marketing, IDC #234367, April 2012. 

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Keep the Language of Marketing a Secret?

Tech marketing leaders constantly search for better ways to align with sales and IT as well as gain greater influence at the executive table. To improve this capability, Marketo's newest board member, Sue Bostrom, offers an intriguing suggestion – keep the language of marketing a secret.

Sue Bostrom is one of the Silicon Valley's most accomplished marketers. A former executive vice president and CMO at Cisco, she serves on the boards of Marketo, Varian Medical Systems, Cadence Design Systems, Stanford Hospital & Clinics, and Georgetown University in Washington, D.C.; and advises several prestigious organizations.  At the recent Marketo User Summit, Sue shared with the enthusiastic fan-base practices that contributed to her success.

One piece of advice - consider the language of marketing a "secret language", one that we use when only when we talk to other practitioners.  When we talk to others, use ordinary language.

Since I speak the language of marketing every day, it had not occurred to me that what seems like normal conversation to us may seem like gibberish to colleagues.  Then I thought about the terms we throw around so easily. How about brand DNA, fan ratios, A/B testing, creating customer value, psychographics, listening platforms, CPM, leave behinds, personas, net promoter scores, positioning, referral premiums, authenticity, or network analysis? Maybe the language of marketing has become too technical, too insider.

As the audience left the packed ballroom following the keynote, I heard a few attendees complaining. They interpreted Sue's suggestion as a directive to make marketing a second-class profession in the corporate world. I disagree with this interpretation. All sophisticated professions develop specific terminology. Spoken inside the community, it achieves precision and clarity. But to those outside the profession, it sounds confusing, irritating, and possibly elitist. Think how annoyed people get when attorneys use legal jargon. Here's an example I pulled from a website appropriately called the Plain English Campaign:

"Any reference to a specific statute include any statutory extension or modification amendment or re-enactment of such statute and any regulations or orders made under such statute and any general reference to "statute" or "statutes" include any regulations or orders made under such statute or statutes"

Huh?

Using plain language when we speak to non-marketers is not "dumbing things down".  It does not diminish our worth to use ordinary language.  It increases the chances that we will be understood. It shows respect for our colleagues' experience in other areas.

What are some ways we can communicate more clearly with colleagues in other business functions?

• Substitute ordinary language and analogies for buzzwords: when eCommerce was just beginning, Sue told her fellow executives that the website would "sell while they slept"
• Explain with data: for many business concepts, numbers can be more objective and clear than wordy explanations (but avoid mind-numbing, execution-level detail!)
• Use visuals: the old maxim that "a picture is worth a thousand words" is true because pictures allow someone to grasp many aspects of a situation simultaneously -  especially good for communicating complex concepts

Sue Bostrom is a marketer who earned a seat at the highest leadership table. And let's face it, not many technology marketers have. I think we should heed her advice.

(P.S. Congratulations to Marketo on the launch of their new social marketing release and to CEO Phil Fernandez on the publication of his new book, Revenue Disruption).

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How High Can Stocks Bounce?

The market is getting a nice bounce in early trading as investors return from their holiday weekend in a buying mood.

Asian markets rallied overnight after speculation is increasing that further stimulus will come out of China to deal with its slowing economy.  Europe's markets are mixed today as fears about Greece, etc. are off the front burner-- at least briefly.  I expect the headlines to resume shortly.  There are headlines out right now that the EU is planning on coming up with a new stability plan in June.

In economic news, the Consumer Confidence index came in below expectations in May at 64.9 from 68.7 last month. This differs from the Univ. of Mich. survey last week which was at a 4-year high.

The dollar is lower vs. the euro, which is helping commodities.  Oil prices are higher near $92.10.  Gold prices are also higher to $1576, as are silver and copper prices.

The 10-year yield is still languishing at 1.73%, not far from its recent lows.  And the VIX is only down 1% today to 21.50.  If folks were buying into this rally, I would expect the VIX to be down more than it is.  That likely means folks are still skeptical of this market's ability to hold these gains.

Trading comment: Last week I said I still felt that with the market oversold and bearish sentiment at high levels that the market should continue to move higher.  I thought the rally could carry the S&P 500 into the 1340-1360 range.  Today the SPX has reached 1335, which is pretty close to that lower band.  As we approach those levels, I want to look to lighten up on our equity exposure and add back to some ETF hedges.  I don't want to get too bearish, as I suppose its possible that the EU could come up with some good can-kicking ideas, and Greece could elect a govt. that sticks to the austerity plans.  But I don't think we've seen the last of the volatility and the summer swoon-type declines like we saw in each of the last 2 years.

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Consumers Upbeat Despite Negative Headlines

The market is slightly lower in early trading, despite a surprisingly positive report on consumer sentiment.  The final reading from the Univ. of Mich. for May consumer sentiment improved to 79.3, which marks the highest level in more than four years.  I think that is pretty surprising given the constant negative headlines about Greece, the fiscal cliff, etc.  Or it may be that as a portfolio manager those headlines are front and center for me everyday, but for the general public they are not considered front page news.

Despite some lackluster action the last few days, the S&P 500 is up about 2% for the week if it were to close at current levels.  Among the sector ETFs, defensive utilities are again leading the early action, but surprisingly financials are getting a bounce this morning also.

The euro is bouncing around the flat line today, after having a very bad week.  This has helped the dollar rally for most of the week, and commodities faced a nearly 3% weekly loss.  This morning, oil prices are slightly higher near $90.85 and gold prices are also bouncing a bit to $1565. 

Europe's markets are mixed as eurozone leaders continue to call for the creation of a euro bond to help provide funds for dealing with the debt issues.  But Germany remains opposed to the measure since many believe they would be the ones paying for it.

The 10-year yield remains at low levels overall near 1.75%.  As for the VIX, it closed near its lows yesterday and is up slightly this morning to 21.65.

Trading comment: We haven't seen the follow through day bulls were looking for, but the window is still open next week for it to come.  It will probably take some positive developments out of Europe to light a fire under the market, but the conditions are in place for it since bearish sentiment remains high among investors and the put/call ratio is coming off a long streak of very high readings. 

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Will Euro Bonds Float The Market?

The market is slightly higher in early trading after a nice reversal yesterday off the lows.  Sentiment is slightly improved in Europe as leaders meet to discuss more plans for dealing with the debt crisis and the possibility of a Greek exit.  The issue of eurobonds has been floated around, and it seems like most members are in favor of the idea with Germany being the lone standout and strongly opposed to the idea.

There has also been some chatter that the Fed is helping provide liquidity by considering a cut to swap line fees as part of a large coordinated bank action.  History shows us that any time we get coordinated global central bank action the market usually rallies in the short-term.  But it doesn't always mark the low.

The improved tone in Europe is helping the euro bounce a tiny bit, which is also helping commodities lift.  Oil prices have bounced to $91.41, gold prices are higher near $1575, and silver and copper prices are higher also.

In corporate news, HPQ was able to top estimates and its stock is higher.  COST is also higher after topping estimates.  NTAP lowered guidance and the stock is taking it on the chin.  Other stocks lower after reporting include TIF, HNZ, SIG.

In economic news, durable goods for April were essentially in-line at +0.2%.  And last month's figures were revised higher. Jobless claims were also in-line, while continuing claims declined to 3.26 million from 3.29 million.

So far among the economic sectors etfs, energy stocks are lagging while defensive utilities are leading (so are consumer staples).

The 10-year yield is getting a bounce to 1.77% after successfully holding the 1.70% level yesterday for the 3rd time in the last week.  Hopefully this will provide a floor.  As for the VIX, it is right between that 20-25 level I have been talking about at 22.20 right now.  Yesterday it got close to the 25 level before a big downside reversal into the close.

Trading comment: If the central banks are coordinating something, that could be the catalyst that provides a spark to this weak oversold rally we've been seeing.  The lows at SPX 1300 held yesterday but we need to take out Tuesday's highs at 1328 for the uptrend to pick up steam.  We are still in the window for IBD-style folks to be looking for a follow through confirmation rally to Monday's rally.  I think the SPX can get up into that 1340-1360 range where it will run into stiffer resistance.  We would be looking to lighten up on equity exposure and add back to some etf hedges if and when we reach said levels.

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