Monday, October 1, 2007

4th quarter begins with a bang

As though there is no peak too high for the US equity markets, stocks soared to record highs on Monday as the 4th quarter opened with the loud sounds of buy orders.

Dow 14,087.55 +191.92; NASDAQ 2,740.99 +39.49; S&P 500 1,547.04 +20.29; NYSE Composite 10,184.50 +145.22

Whether or not this frenzied pace is sustainable is anyone's guess, but buying stocks when they are at or near their all-time highs has proven - time and again - to be a fool's game. The Dow Jones Industrials soared to a record close on strong volume with the other major indices reaching or close to multi-year highs. The NASDAQ is at a 6 1/2 year high; the S&P 500 within 6 points of its all-time high.

Market internals displayed the obvious. Gainers outnumbered losers by nearly 3-1 while new highs arched over new lows, 451-159, the largest that divergence in two months.

Naturally, the dollar fell again against the British Pound and the Euro, but commodities were tame. Oil futures lost another $1.42, but remain stubbornly high, closing at $80.24. Gold gained while silver lost marginally.

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Not everyone is convinced that this rally is sustainable as most of it has to do with the recent Federal Reserve rate cuts and the promise of more to come. Worldwide, equity markets have had over $1 trillion pumped into them since the recent sub-prime induced liquidity crisis and inflation and recession may be rearing their twin ugly heads sooner than anyone might hope.

For a perspective on why Fed rate cuts are not always good for economies, see this exceptional article on the site.

Tuesday will be all the more interesting to see if volume and price remain strong.

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