Tuesday, April 29, 2008

Plenty of Bad News Ahead of Fed

The markets spent another day running in place as traders await Wednesday afternoon's rate policy announcement. As the Fed is largely expected to cut the federal funds rate another 25 basis points, there doesn't seem to be much to get excited about even after the announcement.

Tuesday was a good day for hand-ringing, with economic news very much on the negative side.

The Conference Board reported their measure of Consumer Confidence hit a 5-year low, falling to 62.3 in April, down from the revised 65.9 in March.

The housing situation in the US continues to deteriorate. Median home prices fell by 12.7% in February, at the same time the number of homes heading towards foreclosure leapt 112% in the first quarter of '08 as compared to the same period in '07, and up 23 percent from the 4th quarter of '07.

Perhaps the only good news was in the price of oil, which fell sharply on - believe it or not - supply and demand concerns. It seems as though the high prices at the pump are finally coming home to roost. People are changing their driving and buying habits, albeit slowly, and word is spreading that there's actually an oversupply of oil available.

It's inevitable that such a hyperventilated market as is oil would have to bust sooner than later. Here's hoping the price of crude is under $75 this time next year.

All of this did little to buoy the fears of collected investors. Stocks were off, though marginally, and seem to have stalled at key resistance levels. With the earnings season winding down, it's back to the grind of daily economic reports detailing a widening, deepening recession, such as was suggested by Warren Buffett on Monday.

Dow 12,831.94 -39.81; NASDAQ 2,426.10 +1.70; S&P 500 1,390.94 -5.43; NYSE Composite 9,285.91 -63.70

Of companies reporting on Tuesday, Corning (GLW), Visa (V), Mastercard (MA) and British Petroleum (BP) all topped estimates handily, while Deutsche Bank (DB) and US Steel (X) slipped below expectations. Merck (MRK) fell sharply when the US Food and Drug Administration rejected Cordaptive, a cholesterol-lowering drug.

Amid thin trading, declining issues outperformed advancers by 3663-2539. Once more, there were more new lows (170) than new highs (82), an ongoing trend. In fact, the gap between the new highs and new lows continues to widen, indicating the possibility that the market is ready to do an about face after six weeks of gains regardless of what the Fed decides on Wednesday. When all is said and done, the market may just move on its own weight back into the mid-March levels.

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As mentioned above, oil fell markedly, off $3.12, to $115.63. The metals also felt some pain, as gold fell $18.70 to $876.80 and silver lost 48 cents to $16.64. More evidence of a widespread deflationary spiral developing if worldwide growth sputters.

Two of the three main events for the week begin tomorrow, with the Fed rate announcement tomorrow afternoon and conclude on Friday after the Labor Dept. releases Non-farm payroll data for March. Maybe most importantly, the Commerce Department issues a preliminary reading on GDP for the first quarter prior to the market's open tomorrow, a key reading at what may turn out to be a critical moment. Following the 4th quarter reading of 0.6% growth, expectations are for anywhere from 0.4-0.7% growth, though much of that may be attributed to higher food and energy prices. In real terms, a reading under 0.5% may indicate that real growth has stalled and recession has already arrived, as some economists are already saying.

NYSE Volume 3,753,163,250
NASDAQ Volume 1,763,981,000

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