It may not have been just what the Federal Reserve's Open Market Committee did or said so much as a general mood that they wouldn't do anything to upset the rather delicate balancing act currently underway in world markets.
The Fed, as expected, kept the Federal Funds rate at 0 to .25%, and the discount rate at .50%, said more about improvements in markets than deterioration and slipped in a line or two suggesting that there was no more need for further quantitative easing - they've pledged to buy up to $300 billion in Treasury notes - after the end of October.
For a change, markets were markedly higher prior to the 2:15 pm announcement and changed little afterwards, with stocks more or less drifting at sustained levels into the close. This shows that Fed chairman Ben Bernanke understands the fragility of the situation and is very cautious about how Fed actions are explained to the markets and general public. Nearly a year after the worst financial shock since the Great Depression, Bernanke's Fed has provided leadership and persistence to bring the US and world economies back from the brink of disaster. Whether it's black magic or shrewd understanding of economics, he deserves credit for at least righting a ship that had gone seriously off course.
The next step is to bring back GDP growth, and jobs, no easy tasks, though today's response on the financial markets seem to indicate that the mood of investing professionals has definitely turned the most positive since September of 2008.
Dow 9,361.61, +120.16 (1.30%)
NASDAQ 1,998.72, +28.99 (1.47%)
S&P 500 1,005.81, +11.46 (1.15%)
NYSE Composite 6,538.87, +75.25 (1.16%)
Bolstering the optimistic tone was a return to advancing issues dominating decliners, 4690-1770, More new highs than new lows, 126-53, and a slight uptick in volume.
NYSE Volume 1,306,697,000
NASDAQ Volume 2,154,837,000
Commodities seemed to appreciate the mellow tone of the Fed announcement. Oil gained 71 cents, to $70.16; gold marked $4.90 higher, to $952.50, and silver gained 24 cents, to $14.59.
The Fed decision was crucial for the market to retain confidence. Next up is a broad survey of retail sales on Thursday, with preliminary CPI figures due out Friday, along with Capacity Utilization and Industrial Production reports for July.
Wednesday, August 12, 2009
Tuesday, August 11, 2009
Was Friday the Top?
If you're prone to watching the financial news networks - warning, doing so may be harmful to your portfolio - Tuesday must have been like living in a giant echo chamber. Everyone on the air was screaming "sell, sell, sell," neatly flowing into the dwnward trend of the market, for the second straight day.
Anyone who pays attention to the talking heads on CNBC or elsewhere probably noticed that the mood had shifted dramatically from the effusive optimism on Friday to the terrified pessimism on Tuesday. The reasons for the sudden change of heart are manifold and diverse, but the overriding themes were that markets had run too far, too fast, and that the banking sector was being mercilessly pounded.
The crazies on TV are probably not so much in tune with the inner workings of the market as say, your average cat or dog. The downturns over the past week have been generally mild, and today's was nothing really different. Investors were taking profits at the end of a particularly solid earnings season came and went. There's nothing obscene or mysterious about taking some money off the table. In fact, it's rather prudent, sound and eventually productive for the markets. Any money coming out of stocks today will likely go back in within weeks. Traders, being driven alternately by fear and greed, won't sit idle for long, especially if stocks rebound quickly, though a prolonged period of sideways movement cannot be ruled out altogether. By the start of football season, in about 3 weeks, stocks won't be much changed from current levels.
Another consideration is that the financials, which have largely led the most recent one-month rally, are more than a little overbought. Remember, it was less than a year ago that the largest banking institutions in the world were about to implode from various malinvestments and poor money management. Faith in these same companies is fickle and thinly-based. A cyclical movement away from financial stocks and into more fundamental companies like industrials, key services or raw materials makes more sense than an abrupt end to the rally.
Dow 9,241.45, -96.50 (1.03%)
Nasdaq 1,969.73, -22.51 (1.13%)
S&P 500 994.35, -12.75 (1.27%)
NYSE Composite 6,463.62, -86.43 (1.32%)
On top of the aforementioned rationales for the rally not really being over, the lack of volume on Tuesday was really the most telling signal that not everyone was on the CNBC selling bandwagon. To say that the pace of trading was slow would be putting it lightly. Stocks were absolutely crawling off the ticker. There was no sign of the usual rush for the exits that would normally accompany a major sell-off. Losers beat gainers, by a substantial margin, 4682-1745. New highs maintained their edge over new lows, 108-47. The gap between the new highs and lows has narrowed, but nothing, not even our most consistent indicator of market strength or the lack thereof, moves in straight lines.
NYSE Volume 1,325,736,000
Nasdaq Volume 1,975,425,000
Crude oil futures finally cracked down below $70/barrel, losing $1.15 on the day, to $69.45. Gold gained 70 cents, to $947.60, while silver lost a penny to $14.35. Oil prices are likely to be further influenced by Wednesday's weekly inventory report. They continue to defy logic, gravity and natural supply-demand constraints. Oil should be selling for about $45/barrel because there's an absolute oversupply, slack demand and no natural disasters disruptive of supply.
One final caveat on the trading of Tuesday. Some of this can surely be attributed to fear of the Fed, which concludes a two-day meeting Wednesday with the release of their rate statement, which undoubtedly will be unchanged at 0-.25%. The kicker is whether the statement will be rife with discouraging commentary or filled with more hopeful - and helpful - statements. It's likely to be a little bit of both, after which the markets can get back to evaluating stocks instead of musing over macroeconomics.
Anyone who pays attention to the talking heads on CNBC or elsewhere probably noticed that the mood had shifted dramatically from the effusive optimism on Friday to the terrified pessimism on Tuesday. The reasons for the sudden change of heart are manifold and diverse, but the overriding themes were that markets had run too far, too fast, and that the banking sector was being mercilessly pounded.
The crazies on TV are probably not so much in tune with the inner workings of the market as say, your average cat or dog. The downturns over the past week have been generally mild, and today's was nothing really different. Investors were taking profits at the end of a particularly solid earnings season came and went. There's nothing obscene or mysterious about taking some money off the table. In fact, it's rather prudent, sound and eventually productive for the markets. Any money coming out of stocks today will likely go back in within weeks. Traders, being driven alternately by fear and greed, won't sit idle for long, especially if stocks rebound quickly, though a prolonged period of sideways movement cannot be ruled out altogether. By the start of football season, in about 3 weeks, stocks won't be much changed from current levels.
Another consideration is that the financials, which have largely led the most recent one-month rally, are more than a little overbought. Remember, it was less than a year ago that the largest banking institutions in the world were about to implode from various malinvestments and poor money management. Faith in these same companies is fickle and thinly-based. A cyclical movement away from financial stocks and into more fundamental companies like industrials, key services or raw materials makes more sense than an abrupt end to the rally.
Dow 9,241.45, -96.50 (1.03%)
Nasdaq 1,969.73, -22.51 (1.13%)
S&P 500 994.35, -12.75 (1.27%)
NYSE Composite 6,463.62, -86.43 (1.32%)
On top of the aforementioned rationales for the rally not really being over, the lack of volume on Tuesday was really the most telling signal that not everyone was on the CNBC selling bandwagon. To say that the pace of trading was slow would be putting it lightly. Stocks were absolutely crawling off the ticker. There was no sign of the usual rush for the exits that would normally accompany a major sell-off. Losers beat gainers, by a substantial margin, 4682-1745. New highs maintained their edge over new lows, 108-47. The gap between the new highs and lows has narrowed, but nothing, not even our most consistent indicator of market strength or the lack thereof, moves in straight lines.
NYSE Volume 1,325,736,000
Nasdaq Volume 1,975,425,000
Crude oil futures finally cracked down below $70/barrel, losing $1.15 on the day, to $69.45. Gold gained 70 cents, to $947.60, while silver lost a penny to $14.35. Oil prices are likely to be further influenced by Wednesday's weekly inventory report. They continue to defy logic, gravity and natural supply-demand constraints. Oil should be selling for about $45/barrel because there's an absolute oversupply, slack demand and no natural disasters disruptive of supply.
One final caveat on the trading of Tuesday. Some of this can surely be attributed to fear of the Fed, which concludes a two-day meeting Wednesday with the release of their rate statement, which undoubtedly will be unchanged at 0-.25%. The kicker is whether the statement will be rife with discouraging commentary or filled with more hopeful - and helpful - statements. It's likely to be a little bit of both, after which the markets can get back to evaluating stocks instead of musing over macroeconomics.
Friday, August 7, 2009
Jobs Data Sends US Equities Rocketing Higher
An hour prior to the opening bell, the first really strong message that the US economy might actually be entering a recovery appeared in the form of the US Labor Department's July Non-farm Payroll Report, which showed the loss of jobs declining to its lowest level since August 2008. The number of jobs gone begging in July was -247,000, well below the estimated 325-350,000 which had been predicted. The unemployment rate actually fell, due to shrinkage in the total labor pool, down to 9.4%, from 9.5% in June.
Investors cheered the news, at one point sending the Dow Jones Industrials up over 150 points. Afternoon trading trimmed some of the gains, but it was the best showing for stocks in two weeks and the 4th straight week of improvement on the major indices.
The NASDAQ surpassed the magic 2000 mark, while the S&P 500 leaped over 1000. The Dow closed at its highest point since November 4, 2008 (9625.28). Nothing more than continued improvement in employment was needed to send stocks on a tear. If payrolls continue to be slashed at ever-smaller rates, month-over-month, that will be absolutely the tonic the US economy needs to begin a growth path and for companies to eventually begin hiring. The creation of American jobs is the #1 issue facing the economy and the news of the day put a positive tint on the entire labor picture.
Dow 9,370.07, +113.81 (1.23%)
NASDAQ 2,000.25, +27.09 (1.37%)
S&P 500 1,010.48, +13.40 (1.34%)
NYSE Composite 6,586.71, +69.04 (1.06%)
Advancing issues finished well ahead of decliners in the broad-based rally, 4749-1729, while new highs continued to sprout up, numbering 210 on the day, as compared to just 79 new lows. The only small negative was volume, which tracked a bit slower than the previous two down sessions, though not considerably. With the amount of fund money still in hiding, there still seems to be a mood of caution, though Monday may prove to be a test of how long investors are willing to watch profits slip by before taking the plunge back into stocks.
NYSE Volume 1,484,737,000
NASDAQ Volume 2,345,724,000
Commodities were almost uniformly priced lower, with September light crude losing $1.01, to $70.93 and gold slipping $3.40, to $959.50. Silver bucked the trend, gaining 2 cents, to $14.67.
The jobs data was about as positive a sign investors have seen since the depths of the financial crisis in the Fall of 2008 and Winter of 2009. Credit for averting a major economic catastrophe must be awarded to Ben Bernanke and the Federal Reserve, for the unorthodox methods used to pump money into the US economy through a variety of means.
While the lasting affects of the Fed's many moves are still unknown, it's nearly certain that their actions helped keep the economy of not only the US, but the entire world, from falling off a cliff.
Investors cheered the news, at one point sending the Dow Jones Industrials up over 150 points. Afternoon trading trimmed some of the gains, but it was the best showing for stocks in two weeks and the 4th straight week of improvement on the major indices.
The NASDAQ surpassed the magic 2000 mark, while the S&P 500 leaped over 1000. The Dow closed at its highest point since November 4, 2008 (9625.28). Nothing more than continued improvement in employment was needed to send stocks on a tear. If payrolls continue to be slashed at ever-smaller rates, month-over-month, that will be absolutely the tonic the US economy needs to begin a growth path and for companies to eventually begin hiring. The creation of American jobs is the #1 issue facing the economy and the news of the day put a positive tint on the entire labor picture.
Dow 9,370.07, +113.81 (1.23%)
NASDAQ 2,000.25, +27.09 (1.37%)
S&P 500 1,010.48, +13.40 (1.34%)
NYSE Composite 6,586.71, +69.04 (1.06%)
Advancing issues finished well ahead of decliners in the broad-based rally, 4749-1729, while new highs continued to sprout up, numbering 210 on the day, as compared to just 79 new lows. The only small negative was volume, which tracked a bit slower than the previous two down sessions, though not considerably. With the amount of fund money still in hiding, there still seems to be a mood of caution, though Monday may prove to be a test of how long investors are willing to watch profits slip by before taking the plunge back into stocks.
NYSE Volume 1,484,737,000
NASDAQ Volume 2,345,724,000
Commodities were almost uniformly priced lower, with September light crude losing $1.01, to $70.93 and gold slipping $3.40, to $959.50. Silver bucked the trend, gaining 2 cents, to $14.67.
The jobs data was about as positive a sign investors have seen since the depths of the financial crisis in the Fall of 2008 and Winter of 2009. Credit for averting a major economic catastrophe must be awarded to Ben Bernanke and the Federal Reserve, for the unorthodox methods used to pump money into the US economy through a variety of means.
While the lasting affects of the Fed's many moves are still unknown, it's nearly certain that their actions helped keep the economy of not only the US, but the entire world, from falling off a cliff.
Thursday, August 6, 2009
Stocks Slip for Second Straight Session
US stock indices finished in the red for the second straight day as another spate of so-so economic news crossed the new wires. It wasn't so much the initial jobless claims figures that shook things up - they were improved over the previous week at 550,000, but the continuing claims were higher, at 6.31 million, due to extensions in unemployment benefits keeping more workers on the government dime for longer than the usual 39 weeks.
With money coming in and no prospects for gainful employment on the horizon, many of those already furloughed are living check to check, those being furnished by government agencies. As long as no new jobs are being created, America will continue to devolve from a nation of entrepreneurs into a de facto welfare state, with government picking up the tab for everything from rent to food to health care to spending money. The hard side of that reality is for the businessman or woman who will face ever higher taxes and costs related to doing business with a sub-prime clientele.
The path of the nation doesn't have to be as stark, though the current crop of clowns in congress certainly seem to be pushing in that direction. Gone is the resolve to work hard, the commitment to family values and self-reliance. They are being rapidly replaced with the mantra of "good-for-the-whole" socialism, with all of its incentives for sloth, laziness, avarice and assorted vices. The malaise which began with a real estate bubble promoted by George W. Bush's "ownership society" - truly the most false and baseless political creed of recent memory - has proceeded along a perceptible, predictable and inescapable path to homelessness and destitution across a wide swath of the country.
Some areas are doing better than others, obviously, but the hardest hit are those which have suffered the double-whammy of rampant unemployment on top of foreclosures, such as Detroit, most of southern Florida, Las Vegas and many parts of exurbia Southern California. The deep South, never a bellwether for enterprise, is still largely backwards, the Northeast and West Coast are still culturally significant and maintaining a facade of social manners, though the biggest states - New York and California - are overburdened by huge government apparatus and absurdly high rates of taxation. The Midwest continues to hold pockets of civility, though many of the larger cities are reeling from the economic downturn.
While most to these realities are overlooked by the financial media and Wall Street's "everybody's an investor" mentality, the general welfare of the bulk of the lower and middle class populations is not of great concern so long as government largely continues to foot the bills. All of this works for smart companies who ignore the larger picture, have cut labor and other costs and continue to profit and take market share. The largess of the government these past five months has been like manna from heaven for many keen companies. They'll keep making money without regard to its source.
That's why the past two days haven't been very dramatic. Investor types know that their recent gains could eventually sour, but current government policies, like cash for clunkers, are greasing the wheels with billions of borrowed dollars. And those polices are going to stay in place and have other, similar, social-programming policies piled atop them. Business could care less, as long as the money continues to roll in.
Dow 9,256.26, -24.71 (0.27%)
NASDAQ 1,973.16, -19.89 (1.00%)
S&P 500 997.08, -5.64 (0.56%)
NYSE Composite 6,517.67, -40.52 (0.62%)
Declining issues grabbed the edge over advancers once again, today by a wider margin, 4185-2223, but new highs were better than new lows, 169-63. Volume continued to run at a less-leisurely pace than in previous weeks for the second straight day.
NYSE Volume 1,389,338,000
NASDAQ Volume 2,447,769,000
Commodity prices stagnated, with oil off 3 cents, to $71.94, gold down $3.40, to $962.90 and silver off 12 cents, at $14.65.
The real troubling news came from the retail sector, which has been taken out to pasture and summarily slaughtered over the past 12 months, as company after company reported dismal same-store sales in comparison to a year ago. Those retail figures are likely to remain bad until they can be matched up against already bad numbers, and that won't begin until November or December at the earliest. While retail wonks are concerned about back-to-school sales (somewhat of a non sequitur - how much beyond a few new items of clothing, notebooks, pens and gadgets do students really need?), the more serious concern is the holiday season, now less than five months out. After a dismal Christmas season for many retailers, the concern is that consumers will still be buying at less-than-robust levels. That may already be a given and currently being priced into many retail stocks, though the consumer tech area could really be hit hardest of all through the fall and winter.
Looking ahead to Friday, market sentiment will largely be in response to the government's non-farm employment report for July, which is expected to show job losses in the neighborhood of 325-375, 000. The number, unless it is completely out of line with the usual government massage, should fall into that range, which should cheer investors. The actual anticipatory knee-knocking trepidation leading up the the big Friday number has been overdone. While nobody expects miracles, any improvement will be billed as a good sign of a slowly recovering economy, whether or not that is actually the case. Espeically on the heels of ADP's private sector jobs number of -371,000 for July, released just yesterday, the government figure is quickly becoming an anachronistic afterthought, month after tiresome month.
With money coming in and no prospects for gainful employment on the horizon, many of those already furloughed are living check to check, those being furnished by government agencies. As long as no new jobs are being created, America will continue to devolve from a nation of entrepreneurs into a de facto welfare state, with government picking up the tab for everything from rent to food to health care to spending money. The hard side of that reality is for the businessman or woman who will face ever higher taxes and costs related to doing business with a sub-prime clientele.
The path of the nation doesn't have to be as stark, though the current crop of clowns in congress certainly seem to be pushing in that direction. Gone is the resolve to work hard, the commitment to family values and self-reliance. They are being rapidly replaced with the mantra of "good-for-the-whole" socialism, with all of its incentives for sloth, laziness, avarice and assorted vices. The malaise which began with a real estate bubble promoted by George W. Bush's "ownership society" - truly the most false and baseless political creed of recent memory - has proceeded along a perceptible, predictable and inescapable path to homelessness and destitution across a wide swath of the country.
Some areas are doing better than others, obviously, but the hardest hit are those which have suffered the double-whammy of rampant unemployment on top of foreclosures, such as Detroit, most of southern Florida, Las Vegas and many parts of exurbia Southern California. The deep South, never a bellwether for enterprise, is still largely backwards, the Northeast and West Coast are still culturally significant and maintaining a facade of social manners, though the biggest states - New York and California - are overburdened by huge government apparatus and absurdly high rates of taxation. The Midwest continues to hold pockets of civility, though many of the larger cities are reeling from the economic downturn.
While most to these realities are overlooked by the financial media and Wall Street's "everybody's an investor" mentality, the general welfare of the bulk of the lower and middle class populations is not of great concern so long as government largely continues to foot the bills. All of this works for smart companies who ignore the larger picture, have cut labor and other costs and continue to profit and take market share. The largess of the government these past five months has been like manna from heaven for many keen companies. They'll keep making money without regard to its source.
That's why the past two days haven't been very dramatic. Investor types know that their recent gains could eventually sour, but current government policies, like cash for clunkers, are greasing the wheels with billions of borrowed dollars. And those polices are going to stay in place and have other, similar, social-programming policies piled atop them. Business could care less, as long as the money continues to roll in.
Dow 9,256.26, -24.71 (0.27%)
NASDAQ 1,973.16, -19.89 (1.00%)
S&P 500 997.08, -5.64 (0.56%)
NYSE Composite 6,517.67, -40.52 (0.62%)
Declining issues grabbed the edge over advancers once again, today by a wider margin, 4185-2223, but new highs were better than new lows, 169-63. Volume continued to run at a less-leisurely pace than in previous weeks for the second straight day.
NYSE Volume 1,389,338,000
NASDAQ Volume 2,447,769,000
Commodity prices stagnated, with oil off 3 cents, to $71.94, gold down $3.40, to $962.90 and silver off 12 cents, at $14.65.
The real troubling news came from the retail sector, which has been taken out to pasture and summarily slaughtered over the past 12 months, as company after company reported dismal same-store sales in comparison to a year ago. Those retail figures are likely to remain bad until they can be matched up against already bad numbers, and that won't begin until November or December at the earliest. While retail wonks are concerned about back-to-school sales (somewhat of a non sequitur - how much beyond a few new items of clothing, notebooks, pens and gadgets do students really need?), the more serious concern is the holiday season, now less than five months out. After a dismal Christmas season for many retailers, the concern is that consumers will still be buying at less-than-robust levels. That may already be a given and currently being priced into many retail stocks, though the consumer tech area could really be hit hardest of all through the fall and winter.
Looking ahead to Friday, market sentiment will largely be in response to the government's non-farm employment report for July, which is expected to show job losses in the neighborhood of 325-375, 000. The number, unless it is completely out of line with the usual government massage, should fall into that range, which should cheer investors. The actual anticipatory knee-knocking trepidation leading up the the big Friday number has been overdone. While nobody expects miracles, any improvement will be billed as a good sign of a slowly recovering economy, whether or not that is actually the case. Espeically on the heels of ADP's private sector jobs number of -371,000 for July, released just yesterday, the government figure is quickly becoming an anachronistic afterthought, month after tiresome month.
Wednesday, August 5, 2009
Stocks Turn Lower on Jobs Report
The middle of the week was a day spent underwater as investors weighed a benign employment report from private firm ADP and a lower ISM services number that sent jitters through the market.
While ADP reported that private employers shed 371,000 jobs in July, the ISM services index dropped unexpectedly from 47 in June to 46.4 in July. That prompted more profit-taking than usual around the 10:00 hour as the major indices slipped to their lowest levels of the session soon afterward. Losses were limited, because the prevailing mood is that the worst of the recession is now behind us, and traders are putting much more faith in the efforts of lawmakers on Capitol Hill and in the administration to keep diligently working on getting the US economy back on a positive growth track.
The ADP report foreshadows the "official" government non-farms payroll data due out on Friday prior to the opening bell. It is expected that jobs losses were less severe in July than in previous months, though unemployment continues to be a thorn in the side of the bulls. Positive growth cannot be expected if employers are still cutting payrolls, and even though unemployment is a lagging indicator, investors remain wary that the economy could take another turn for the worse.
What's almost a certainty regarding job losses and foreclosures are government deficits as far as the eye can see. With fewer people employed and/or in self-owned properties, government revenues will not keep pace with the outlays already in municipal, state and federal budgets. Most of the states face deficits for the next two fiscal years, with few exceptions. The problems facing cities of all sizes have yet to brought into serious focus.
However, government budgets and how they pay their bills are a sideshow compared to the rest of the private economy. For better or worse, Americans have been bred to spend every last dollar on goods and services whether they need them or not and the spending, especially by those on public assistance, retirement income or other such pension programs, has been keeping the economy from completely collapsing. Those who are still working have reigned in spending somewhat, while the rich are finding bargains galore as luxury goods have been slashed to fire sale prices in some cases. Cash has been for months and is now king, and will remain so until the labor and housing markets improve.
Retailers are taking it hard, along with commercial developers. There is an overhang of commercial space supply nationwide. Most medium to large cities have aging structures dotting the landscape that are now empty and will remain so until either the market complete caves in and forced bankruptcies are the norm, or the general economy improves to a point at which commercial development makes sense. One such area is currently in apartment building, which has seen growth as more and more Americans are forced out of their homes and into more affordable rental units.
It's still a dicey situation, especially since banks are seeing more foreclosures now than they did during the subprime circus. Foreclosures will continue at a high level until the banks gain some sense of market economic (not likely) or more Americans are on the street or in substandard housing. Today's home buyers believe they're getting bargains when the reality of the situation says they're still overpaying by 10 or as much as 25% in some markets.
Eventually, there will either be another major blow to the economy or things will sort themselves out as in normal recessions. This is hardly a normal recession, however, so betting the farm on improvement over the next 12-18 months is probably foolhardy. Stocks have been appreciating at an accelerated rate, but today's equities more resembles a casino than an orderly market discounting future earnings. There's been a radical downsizing across American enterprises - a trend that is notable, frightening, and seemingly unstoppable. If 2008 was remembered as the year the markets went bust and 2009 a further bottoming out with a rapid recovery, 2010 may well be defined as the year reality struck home. Expect some major bankruptcies in the retail and commercial spaces soon and a rebirth of small business and cottage industries as Americans, ever resourceful, find new ways to skin cats and not only bring home the bacon but make it right in their family rooms.
Dow 9,280.97, -39.22 (0.42%)
Nasdaq 1,993.05, -18.26 (0.91%)
S&P 500 1,002.72, -2.93 (0.29%)
NYSE Composite 6,558.19, -10.95 (0.17%)
In general terms, today's pullback was acceptable and probably healthy. Stocks have been on quite a tear for five months and some give back is expected. This by no means that the current rally has run out of steam. After being on the wrong side of the trade for some time, late-comers will eventually set up a blow-off topping pattern after which stocks will take some serious dips and dives. That's for the fall, however. For now, the rally shows no lack of momentum.
On the day, advancing issues were beaten by decliners, 3722-2727. New highs were recorded by 218 companies, as compared to the 67 new lows. The high-low indicator continues to scream "buy" even though stocks are already overpriced in many categories. But, as market participants are sure to point out, there's always someone who will buy if you're selling. The key is to not be the last guy in line, a condition which is quickly approaching. Better buying opportunities will likely avail themselves in months ahead - either later this year or in 2010.
Volume was a little better than what has been the norm, which may mean nothing at all, or that traders are getting more serious as summer winds down.
NYSE Volume 1,921,048,000
Nasdaq Volume 2,392,697,000
Commodities were mixed, but mostly higher. Oil gained 55 cents, to $71.97. Gold was down by $3.40, to $966.30, while silver, the buy of the year, gained 7 cents, to $14.76.
While ADP reported that private employers shed 371,000 jobs in July, the ISM services index dropped unexpectedly from 47 in June to 46.4 in July. That prompted more profit-taking than usual around the 10:00 hour as the major indices slipped to their lowest levels of the session soon afterward. Losses were limited, because the prevailing mood is that the worst of the recession is now behind us, and traders are putting much more faith in the efforts of lawmakers on Capitol Hill and in the administration to keep diligently working on getting the US economy back on a positive growth track.
The ADP report foreshadows the "official" government non-farms payroll data due out on Friday prior to the opening bell. It is expected that jobs losses were less severe in July than in previous months, though unemployment continues to be a thorn in the side of the bulls. Positive growth cannot be expected if employers are still cutting payrolls, and even though unemployment is a lagging indicator, investors remain wary that the economy could take another turn for the worse.
What's almost a certainty regarding job losses and foreclosures are government deficits as far as the eye can see. With fewer people employed and/or in self-owned properties, government revenues will not keep pace with the outlays already in municipal, state and federal budgets. Most of the states face deficits for the next two fiscal years, with few exceptions. The problems facing cities of all sizes have yet to brought into serious focus.
However, government budgets and how they pay their bills are a sideshow compared to the rest of the private economy. For better or worse, Americans have been bred to spend every last dollar on goods and services whether they need them or not and the spending, especially by those on public assistance, retirement income or other such pension programs, has been keeping the economy from completely collapsing. Those who are still working have reigned in spending somewhat, while the rich are finding bargains galore as luxury goods have been slashed to fire sale prices in some cases. Cash has been for months and is now king, and will remain so until the labor and housing markets improve.
Retailers are taking it hard, along with commercial developers. There is an overhang of commercial space supply nationwide. Most medium to large cities have aging structures dotting the landscape that are now empty and will remain so until either the market complete caves in and forced bankruptcies are the norm, or the general economy improves to a point at which commercial development makes sense. One such area is currently in apartment building, which has seen growth as more and more Americans are forced out of their homes and into more affordable rental units.
It's still a dicey situation, especially since banks are seeing more foreclosures now than they did during the subprime circus. Foreclosures will continue at a high level until the banks gain some sense of market economic (not likely) or more Americans are on the street or in substandard housing. Today's home buyers believe they're getting bargains when the reality of the situation says they're still overpaying by 10 or as much as 25% in some markets.
Eventually, there will either be another major blow to the economy or things will sort themselves out as in normal recessions. This is hardly a normal recession, however, so betting the farm on improvement over the next 12-18 months is probably foolhardy. Stocks have been appreciating at an accelerated rate, but today's equities more resembles a casino than an orderly market discounting future earnings. There's been a radical downsizing across American enterprises - a trend that is notable, frightening, and seemingly unstoppable. If 2008 was remembered as the year the markets went bust and 2009 a further bottoming out with a rapid recovery, 2010 may well be defined as the year reality struck home. Expect some major bankruptcies in the retail and commercial spaces soon and a rebirth of small business and cottage industries as Americans, ever resourceful, find new ways to skin cats and not only bring home the bacon but make it right in their family rooms.
Dow 9,280.97, -39.22 (0.42%)
Nasdaq 1,993.05, -18.26 (0.91%)
S&P 500 1,002.72, -2.93 (0.29%)
NYSE Composite 6,558.19, -10.95 (0.17%)
In general terms, today's pullback was acceptable and probably healthy. Stocks have been on quite a tear for five months and some give back is expected. This by no means that the current rally has run out of steam. After being on the wrong side of the trade for some time, late-comers will eventually set up a blow-off topping pattern after which stocks will take some serious dips and dives. That's for the fall, however. For now, the rally shows no lack of momentum.
On the day, advancing issues were beaten by decliners, 3722-2727. New highs were recorded by 218 companies, as compared to the 67 new lows. The high-low indicator continues to scream "buy" even though stocks are already overpriced in many categories. But, as market participants are sure to point out, there's always someone who will buy if you're selling. The key is to not be the last guy in line, a condition which is quickly approaching. Better buying opportunities will likely avail themselves in months ahead - either later this year or in 2010.
Volume was a little better than what has been the norm, which may mean nothing at all, or that traders are getting more serious as summer winds down.
NYSE Volume 1,921,048,000
Nasdaq Volume 2,392,697,000
Commodities were mixed, but mostly higher. Oil gained 55 cents, to $71.97. Gold was down by $3.40, to $966.30, while silver, the buy of the year, gained 7 cents, to $14.76.
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