Wednesday, November 14, 2007

Stocks Slapped Down Again

Following yesterday's whoopee, one would have hoped for a little better follow-through than what occurred on Wednesday. Stocks vacillated above the break-even line for most of the day, but sold off dramatically in the final half hour as investors got cold feet in advance of Thursday's CPI and crude inventory numbers. It is probably the latter of those two economic indicators that spooked traders, as oil has been consistently a drag on the market and inventories have been lower than expected more often than not.

Dow 13,231.01 -76.08; NASDAQ 2,644.32 -29.33; S&P 500 1,470.58 -10.47; NYSE Composite 9,809.15 Down 51.83

The overhang of ridiculously-high oil prices and the crunch at the gas pump heading into the holiday season (Thanksgiving is only a week away) has retail and institutional investors alike running scared. Buying gas at 3.35 and up is not sitting well with the American consumer, and there's likely to be bad news come Christmas. Holiday shopping will likely fall below any optimistic estimates, though the high gas prices may bode well for internet retailers, which have racked up impressive numbers over the past five holiday seasons.

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For the remainder of the market, however, the picture is fairly bleak. Mainstream retailers are already talking about big markdowns as early as Black Friday to lock in whatever revenue and profit gains they can early on. This holiday shopping season is going to be particularly long, with Thanksgiving coming somewhat early and three full weeks in December with a final weekend push on the 22nd and 23rd. That gives people more time to shop, but also more time to look and linger and think about what's left in their wallet.

Any advantage from a slightly longer shopping season will likely be blunted by the pallor of high oil and gas and the lingering effects of the sub-prime problems and related banking writedowns.

The damage on Wall Street wasn't severe, with declining issues beating advancers by a 3-2 margin. New lows totaled 359 to only 121 new highs. The market continues to trend lower, despite the obvious bottom-fishing, short-covering rally of Tuesday. The Dow is still only 400 points ahead of the August lows and is less than 1000 points higher than on January 1, a 7% gain for the entire year thus far.

Oil gained $2.92 to $94.09, while gold rebounded strongly, up $15.70 to $814.70. Silver notched another 46 cents to $15.07. With so much strength in commodities, there's plenty of evidence that inflation is worse than what the Fed is calling "contained."

It's beginning to look a lot like Christmas, and Wall Street doesn't like what it sees.

NYSE Volume 3,932,845,500
NASDAQ Volume 2,463,395,500

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