Monday, May 12, 2008

Following Last Week's Losses, Stocks Rise

Last week, the indices took their worst hits in the past two months, so gains, in the absence of any meaningful resistance, were in the cards today on Wall Street.

Despite a profit warning from FedEx (FDX), based on costs related to (what else?) high fuel prices and a major meltdown in earnings reported by bond insurer MBIA (MBI), which reported a first quarter loss of $2.4 billion (-14.03 per share), investors took it upon themselves to get out and buy stocks, based largely on false hopes that the US economy is rebounding and inflation will be tame heading into the summer.

Nothing could be further from the truth. Oil and gas will both continue to march higher without concerted efforts from the US government and/or conservation measures by the average American driver. That's the main catalyst for inflation. Further, some analysts are suggesting that the recession may be just beginning, citing the government's own figures which showed identical 0.6% GDP growth for the 4th quarter of 2007 and the 1st of 2008.

If that's the case, the economy is only now beginning to compress. That scenario, though difficult to believe, may be spot on, meaning that conditions will worsen through the summer and into the fall. Actions by the Fed, including seven consecutive cuts in the federal funds rate and various other machinations designed to keep the economy from imploding, should have had some effect on keeping the GDP in positive territory these past six months, and maybe they did.

However, nothing is going to keep the US economy from falling into recession, though it's hoped that it will be short and shallow rather than long and deep. As it stands, our growth rate is ludicrously low, and changes in budgeting and spending patterns by the biggest spender of all, the federal government, are needed more than ever.

Once again, investors are still in some vague state of denial about the overall need for a strong US economy and the real impact of the subprime debt blow-up.

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Dow 12,876.31 +130.43; NASDAQ 2,488.49 +42.97; S&P 500 1,403.58 +15.30; NYSE Volume 3,326,991,250 NASDAQ Volume 1,731,311,000 NYSE Composite 9,417.97 +90.00

Advancing issues soared ahead of decliners, 4381-1839. New lows, however, were once again ahead of new highs, 167-134.

Oil rose to new highs in early trading, but backed down, to close off $1.90, at $124.10. Gold closed at $884.90, down 90 cents. Silver finished the session at 17.23, a gain of 32 cents.

NYSE Volume 1,050,167,000
NASDAQ Volume 1,758,287,000

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