Monday, October 27, 2008

New Lows All Around

Stocks swung in a 400-point range on the Dow, but ended with sizable losses once more, sending all the major indices to fresh lows.

The markets opened to the downside, after news that Japan's NIKKEI index had suffered another 6% decline, hitting a 26-year low. US stocks shook that off and headed higher in the first hour, but vacillated throughout the session, finally giving way for good late in the day.

Investors still seem concerned that the fallout from the banking and credit issues still hasn't been fully reflected in stocks and across the general economy. Fear continues to grip investors with few grabbing for bargains despite stocks being down significantly over the past month and year.

Among companies posting losses or missing 3rd quarter estimates were hardware and home repair chain Lowes (L, 25.65 -5.66), which took a loss for the period of 31 cents a share, compared to a 77¢ profit a year ago, and health care provider Humana (HUM, 30.80 -5.47), which saw profits shaved by 40% from the same period a year ago due to higher operating costs.

Verizon (VZ, 27.61 +2.53) reported earnings in line with estimates, bucking the trend on a slow earnings news day.

Dow 8,175.77 -203.18; NASDAQ 1,505.90 -46.13; S&P 500 848.92 -27.85; NYSE Composite 5,196.53 -231.01

Market internals matched the headline numbers, with losers beating gainers by a score of 4948-1351. New lows once more finished far ahead of new highs, 1329-9. Clearly, there is no appetite for speculation at this juncture. With the critical US elections now just one week away, investors are clutching their cash close, making no forays into a severely troubled market. Volume was moderate, reflecting the overall lack of buying interest.

NYSE Volume 1,338,367,000
NASDAQ Volume 2,273,988,000

Commodity prices remained subdued. Oil lost another 93 cents, closing at $63.22. Gold gained for the second straight session, up $12.60, to $742.90, still more than 25% off recent highs. Silver lost another 10 cents, to $9.20.

Considering the timing dynamics involved, especially those concerning the potential massive shift of power in Washington, the declining trend should remain in place until at least Tuesday, November 4, election day in the USA. After that, there should be some kind of sober reassessment of Wall Street risk and reward, though the generally poor economic conditions - which should prevail for at least another two or three quarters - will likely keep a secure lid on equity prices.

The other factor at play is that of falling commodity prices, which should begin to manifest itself across a broad spectrum of commercial activity. While the most obvious price relief is at the gas pumps and in home heating bills, price pressure should become more evident in mainstream goods and services at the very worst of time: the Christmas season. The fallout will likely be the shuttering of marginal stores in malls across America, more retail job losses and possibly a number of bankruptcies. The Fed doesn't bail out retailers, only banks and cheating financial institutions.

On that note, more bank failures are almost sure to occur before Christmas causing even further deterioration to the banking/finance sector.

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