US equities lost ground in Friday's session, culminating in the third down week in the last four. Today's losses were contained, with the Dow losing just less than 50 points while the NASDAQ and S&P were only down single digits. The Dow was down 166 points for the week. By contrast, the NASDAQ lost only 16. Blue chips are beginning to feel the pain of a weakening economy. Only 9 of the 30 Dow components showed gains on Friday, the highest being a mere 21 cents by both Wal-Mart and Hewlett-Packard.
Dow 12,110.41 -49.27; NASDAQ 2,372.66 -6.04; S&P 500 1,386.95 -5.33; NYSE Composite 8,982.73 -22.52
Market internals were mixed, as declining issues outpaced advancers by better than a 3-2 margin. New highs stayed ahead of new lows, barely, 145-112.
While sub-prime mortgage lending woes taking the better part of the headlines this week, the undercurrents of inflation, reduced investment flows and upcoming 1st quarter earnings and economic reports are keeping investor sentiment in an extremely cautious posture. With only 2 weeks left in the 1st quarter, if market performance is any gauge, we're in for a rough ride the remainder of the year.
While there are still analysts out there touting stocks and sounding cherry, they're voices are becoming fewer and the commentary increasingly couched in more restrained language. The long running of the bulls is over (officially ended on February 20), and the reality of the correction and the possibility of a protracted bear market is beginning to sink in.
The price of crude continued its week-long slide, losing another 44 cents on Friday to end the week at $57.11. Gold closed at 653.90, +6.80; silver finished the week at 13.22, +0.14. A slowing economy would not augur higher petroleum prices, proving that there indeed is a silver lining inside every dark cloud.
Friday, March 16, 2007
Thursday, March 15, 2007
Climbing the Worry Wall
US indices groped higher on Thursday, the 7th winning session of the last 17, dating back to the Dow's all-time closing high of 12,786.64 on February 20. And therein lies the story. Though the markets have not lately shown a preponderance of down days, the average is lower by more than 600 points in just over three weeks.
Today's slight gains were indicative of an unsure market.
Dow 12,159.68 +26.28; NASDAQ 2,378.70 +6.96; S&P 500 1,392.28 +5.11; NYSE Composite 9,005.25 +46.64
The Producer Price Index (PPI) for February increased by 1.3%, well beyond the market estimate of 0.5%. Food costs showed their largest monthly increase in more than three years. Core PPI rose 0.4 percent. The Labor Department's CPI will be released tomorrow. The reading raised more inflation concerns and speculation of a possible Fed rate increase. The FOMC of the Federal Reserve Board meets next week to decide on interest rates, though consensus opinion says the committee will keep the federal funds rate steady at 5.25% - the rate member banks pay on overnight loans from the Federal Reserve.
The FOMC last raised rates - to their current level - in June of 2006. In their five meetings since, they have made no change to the federal funds rate.
Despite the scary inflation news, investors bid up stocks, though not with great enthusiasm. With residential real estate now in a prolonged decline, capital inflows may be affected as middle to upper income investors express caution with other investments. The expected volatility tied to quadruple options expirations on Friday failed to materialize, seemingly having played itself out during Wednesday's wild ride.
Advancing issues outdid decliners by better than 2-1, and the measure of new highs to new lows flipped back to the positive, 154-88.
Crude oil continued to lose value, dipping 61 cents to $57.55. Gold and silver both notched gains; gold was up $4.60, silver added 25 cents.
Today's slight gains were indicative of an unsure market.
Dow 12,159.68 +26.28; NASDAQ 2,378.70 +6.96; S&P 500 1,392.28 +5.11; NYSE Composite 9,005.25 +46.64
The Producer Price Index (PPI) for February increased by 1.3%, well beyond the market estimate of 0.5%. Food costs showed their largest monthly increase in more than three years. Core PPI rose 0.4 percent. The Labor Department's CPI will be released tomorrow. The reading raised more inflation concerns and speculation of a possible Fed rate increase. The FOMC of the Federal Reserve Board meets next week to decide on interest rates, though consensus opinion says the committee will keep the federal funds rate steady at 5.25% - the rate member banks pay on overnight loans from the Federal Reserve.
The FOMC last raised rates - to their current level - in June of 2006. In their five meetings since, they have made no change to the federal funds rate.
Despite the scary inflation news, investors bid up stocks, though not with great enthusiasm. With residential real estate now in a prolonged decline, capital inflows may be affected as middle to upper income investors express caution with other investments. The expected volatility tied to quadruple options expirations on Friday failed to materialize, seemingly having played itself out during Wednesday's wild ride.
Advancing issues outdid decliners by better than 2-1, and the measure of new highs to new lows flipped back to the positive, 154-88.
Crude oil continued to lose value, dipping 61 cents to $57.55. Gold and silver both notched gains; gold was up $4.60, silver added 25 cents.
Wednesday, March 14, 2007
Not-So-High Noon Sparks Rally
US markets, following the lead of markets in Asia and Europe, were battered during the lunch hour - usually a relatively quiet time for Wall Street - but staged a remarkable rally to close higher. The Dow, which had been vacillating around the no change line all morning, suddenly fell a full 50 points between 12:00 and 12:15 pm Eastern, with the other indices manifesting similar patterns.
The Dow would soon afterwards drop 130 points into the red, but around 1:00 began on a steady, miracle march higher which appeared out of nowhere, on no news, without reason. The rally led the indices into positive territory, though hardly enough to erase yesterday's battering or economic concerns.
Dow 12,133.40 +57.44; NASDAQ 2,371.74 +21.17; S&P 500 1,387.17 +9.22; NYSE Composite 8,958.60 +31.72
While overall breadth was positive, it was hardly so, with advancing issues beating decliners by about a 5-4 margin. What makes skeptics of analysts are days like today with numbers like this: New highs: 95; new lows: 266. That particular metric, which rolled over into the negative yesterday, is shouting out the direction of this market. Today's suspect rally notwithstanding, the market continues to drift lower as the housing market dries up and the US economy heads into a slow-growth (at best) period.
The sub-prime contagion has spread now into stocks beyond financials. Both H&R Block (HRB) and General Motors (GM) were beaten down early in the day by investors due to exposure concerns. Block, the nation's largest preparer of tax returns, also makes short-term, high-interest loans based on tax refunds while GM announced that they would spend up to $1 billion to cover losses by their part-owned GMAC lending arm.
H&R Block was down more than 1.5 points (>7%), but rallied sharply to end in the green. GM was down 91 cents before recovering to close -.26.
Much of today's trade was based on spin and speculation over the depth of the sub-prime problem, but moreso in anticipation of Friday's quadruple witching day, when index options, stock options, index futures, and single stock futures are set to expire. There was a higher than usual interest in arbitrage of stocks and futures today. Many were caught in a bear trap at midday as stocks sunk, then quickly rallied on short covering. It was a day-trader's day, for sure.
Some traders hunted and bagged what they consider bargains, though coming days may prove they were in the market prematurely. The Dow slipped below 12,000 briefly and that downdraft will no doubt be retested.
Oil bounced around all day, eventually closing up 23 cents to $58.16. Gold lost another 6.90, to end up at 642.50. Silver lost .13 to 12.83. Both precious metals are headed for bargain territory. Silver is just about at its interim support level, and a fall through $12.75 could spark further selling into the $10-12 level; gold may have further to fall, with support in the $600-625 range.
After today's spectacular trading range of nearly 200 points (almost 400 over the last three sessions), just about anything could happen on Thursday and Friday. Stay close to that trade button.
The Dow would soon afterwards drop 130 points into the red, but around 1:00 began on a steady, miracle march higher which appeared out of nowhere, on no news, without reason. The rally led the indices into positive territory, though hardly enough to erase yesterday's battering or economic concerns.
Dow 12,133.40 +57.44; NASDAQ 2,371.74 +21.17; S&P 500 1,387.17 +9.22; NYSE Composite 8,958.60 +31.72
While overall breadth was positive, it was hardly so, with advancing issues beating decliners by about a 5-4 margin. What makes skeptics of analysts are days like today with numbers like this: New highs: 95; new lows: 266. That particular metric, which rolled over into the negative yesterday, is shouting out the direction of this market. Today's suspect rally notwithstanding, the market continues to drift lower as the housing market dries up and the US economy heads into a slow-growth (at best) period.
The sub-prime contagion has spread now into stocks beyond financials. Both H&R Block (HRB) and General Motors (GM) were beaten down early in the day by investors due to exposure concerns. Block, the nation's largest preparer of tax returns, also makes short-term, high-interest loans based on tax refunds while GM announced that they would spend up to $1 billion to cover losses by their part-owned GMAC lending arm.
H&R Block was down more than 1.5 points (>7%), but rallied sharply to end in the green. GM was down 91 cents before recovering to close -.26.
Much of today's trade was based on spin and speculation over the depth of the sub-prime problem, but moreso in anticipation of Friday's quadruple witching day, when index options, stock options, index futures, and single stock futures are set to expire. There was a higher than usual interest in arbitrage of stocks and futures today. Many were caught in a bear trap at midday as stocks sunk, then quickly rallied on short covering. It was a day-trader's day, for sure.
Some traders hunted and bagged what they consider bargains, though coming days may prove they were in the market prematurely. The Dow slipped below 12,000 briefly and that downdraft will no doubt be retested.
Oil bounced around all day, eventually closing up 23 cents to $58.16. Gold lost another 6.90, to end up at 642.50. Silver lost .13 to 12.83. Both precious metals are headed for bargain territory. Silver is just about at its interim support level, and a fall through $12.75 could spark further selling into the $10-12 level; gold may have further to fall, with support in the $600-625 range.
After today's spectacular trading range of nearly 200 points (almost 400 over the last three sessions), just about anything could happen on Thursday and Friday. Stay close to that trade button.
Tuesday, March 13, 2007
Sub-prime Submersion
As noted yesterday, dark clouds appeared over Wall Street in the form of defaulting sub-prime lenders, notably, New Century Financial (NEW), and sent the indices reeling on Tuesday.
New Century, which specialized in sub-prime mortgage loans, said on Monday that it may not be able to meet financial obligations of more than $8 billion. Trading on the shares were halted at 1.66 Monday, a loss of more than 96% from its high of 51.97, reached about a year ago. The stock briefly traded higher than 60 in December 2004. Trading continued to be suspended on the issue throughout Tuesday as the NYSE considered delisting and a criminal probe was initiated.
It was a truly horrible day to own stocks. The Dow, S&P, NASDAQ and NYSE Composite all opened lower and continued selling throughout the session, closing at or near the lows of the day.
Dow 12,075.96 -242.66; NASDAQ 2,350.57 -51.72; S&P 500 1,377.95 -28.65; NYSE Composite 8,926.28 -194.05
According to thestreet.com, shares of Bear Stearns (BSC), Lehman (LEH) and Morgan Stanley (MS) experienced losses of 6% or more on exposure to the bad debts of the beleaguered sub-prime market.
Apparently, the damage from mortgage defaults is more severe than those involved have been letting on. It's been suggested that as many as 25% of sub-prime mortgages initiated between 2003 and early 2006 - at the height of the real estate boom - may result in foreclosure and default.
The fault lies not only in the borrowers, whose desire to own an American home outstripped their ability to pay, but in the lenders, whose shady dealings and unethical practices put people who could scarcely afford them into homes with little or no down payment.
The terms of some of these loans are so onerous as to make normal lenders shriek with horror. Interest only loans with increasing principle were all the rage near the end of the boom. Another contributing factor was the rampant speculation on housing which pushed prices beyond normal affordability.
Real estate prices in some of the more overheated markets, such as Southern California, Washington, D.C., Boston and Florida, will take years to weed out the excesses. Homes that typically were selling in the range of 400,000-500,000 in 2005, today will fetch little more than half that amount, leaving many homeowners upside down - mortgage balances higher than the value of their homes. With unappetizing options of staying put and paying or selling at a loss, there are serious grumblings in suburbia.
Of course, with every loser there is a winner or two. Those homeowners who sold at the top of the market and downsized are likely ahead by tens of thousands of dollars. But there's little to no free cash floating around for investment in stocks, and that's crippling Wall Street today and will have a longer term affect as the housing bust deepens.
As this correction and mortgage blow-up extends, more days like this should be expected. Suburban middle and upper-middle class homeowners with little disposable income is not going to boost the economy. On the heels 4th quarter 2006 GDP growth of merely 2.2%, the 1st quarter of 2007 isn't shaping up to be much better. When economic indicators - like today's stalled retail numbers - begin to show little to no growth or outright declines, the other shoe shall have fallen.
Almost unnoticed amid the carnage was another decline in the price of oil, which lost 98 cents to close at $57.93, its lowest close in 3 weeks. Gold and silver continued their long, slow, clumsy, rangebound trade. Gold ended fixed at 649.40, -0.90. Silver ended the day at 12.96, a loss of 13 cents.
Declining issues outpaced advancing ones by a nearly 5-1 margin, while the measure of new highs to new lows flipped over, an ominous signal going forward. There were a combined 154 new highs to 225 new lows on the NYSE and NASDAQ.
New lows must reach a number beyond 350 before a bottom can even be considered close. We're not there yet. In fact, the Dow is still above the March 5 interim low of 12,039.11. There's more - probably much more - selling to come.
New Century, which specialized in sub-prime mortgage loans, said on Monday that it may not be able to meet financial obligations of more than $8 billion. Trading on the shares were halted at 1.66 Monday, a loss of more than 96% from its high of 51.97, reached about a year ago. The stock briefly traded higher than 60 in December 2004. Trading continued to be suspended on the issue throughout Tuesday as the NYSE considered delisting and a criminal probe was initiated.
It was a truly horrible day to own stocks. The Dow, S&P, NASDAQ and NYSE Composite all opened lower and continued selling throughout the session, closing at or near the lows of the day.
Dow 12,075.96 -242.66; NASDAQ 2,350.57 -51.72; S&P 500 1,377.95 -28.65; NYSE Composite 8,926.28 -194.05
According to thestreet.com, shares of Bear Stearns (BSC), Lehman (LEH) and Morgan Stanley (MS) experienced losses of 6% or more on exposure to the bad debts of the beleaguered sub-prime market.
Apparently, the damage from mortgage defaults is more severe than those involved have been letting on. It's been suggested that as many as 25% of sub-prime mortgages initiated between 2003 and early 2006 - at the height of the real estate boom - may result in foreclosure and default.
The fault lies not only in the borrowers, whose desire to own an American home outstripped their ability to pay, but in the lenders, whose shady dealings and unethical practices put people who could scarcely afford them into homes with little or no down payment.
The terms of some of these loans are so onerous as to make normal lenders shriek with horror. Interest only loans with increasing principle were all the rage near the end of the boom. Another contributing factor was the rampant speculation on housing which pushed prices beyond normal affordability.
Real estate prices in some of the more overheated markets, such as Southern California, Washington, D.C., Boston and Florida, will take years to weed out the excesses. Homes that typically were selling in the range of 400,000-500,000 in 2005, today will fetch little more than half that amount, leaving many homeowners upside down - mortgage balances higher than the value of their homes. With unappetizing options of staying put and paying or selling at a loss, there are serious grumblings in suburbia.
Of course, with every loser there is a winner or two. Those homeowners who sold at the top of the market and downsized are likely ahead by tens of thousands of dollars. But there's little to no free cash floating around for investment in stocks, and that's crippling Wall Street today and will have a longer term affect as the housing bust deepens.
As this correction and mortgage blow-up extends, more days like this should be expected. Suburban middle and upper-middle class homeowners with little disposable income is not going to boost the economy. On the heels 4th quarter 2006 GDP growth of merely 2.2%, the 1st quarter of 2007 isn't shaping up to be much better. When economic indicators - like today's stalled retail numbers - begin to show little to no growth or outright declines, the other shoe shall have fallen.
Almost unnoticed amid the carnage was another decline in the price of oil, which lost 98 cents to close at $57.93, its lowest close in 3 weeks. Gold and silver continued their long, slow, clumsy, rangebound trade. Gold ended fixed at 649.40, -0.90. Silver ended the day at 12.96, a loss of 13 cents.
Declining issues outpaced advancing ones by a nearly 5-1 margin, while the measure of new highs to new lows flipped over, an ominous signal going forward. There were a combined 154 new highs to 225 new lows on the NYSE and NASDAQ.
New lows must reach a number beyond 350 before a bottom can even be considered close. We're not there yet. In fact, the Dow is still above the March 5 interim low of 12,039.11. There's more - probably much more - selling to come.
Monday, March 12, 2007
Three in a Row for the Dow, but Trouble is Brewing
Could the markets be on to something? The Dow Jones Industrials rose for the third consecutive session on Monday, adding 42 points and with that, completing a 2% gain off the lows of last week.
Dow 12,318.62 +42.30; NASDAQ 2,402.29 +14.74; S&P 500 1,406.60 +3.75; NYSE Composite 9,120.93 +25.94
As we see from the numbers above, the other indices tagged along for the ride. And what a nice ride it was, though most investors thought better of it. To say that the volume was thin would be overstating the case. Especially on the NASDAQ, it was nothing short of anemic.
But the markets made the best of it, putting on the bravest of brave faces and likely cheering the drop in the price of oil, which fell 1.14 to $58.91, a welcome number for anyone who owns (or is paying off a 6-year loan on) a car.
In the absence of any noteworthy news, little things could make a huge difference in this directionless market. Some of the smallest things are little movements in interest rates, which are heading higher thanks no doubt to the seeming end of easy money, particularly in the mortgage arena. There, a company called New Century Financial Corp. is about to go completely belly up, taking down $8 billion in bad money with it.
What worries Wall Street is that New Century's collapse could cause a tsunami in financial markets. The company specialized in sub-prime loans, or more succinctly, mortgage loans to people who probably shouldn't have them. CNNMoney has a good article on the subject.
New Century originated many of these sub-prime loans, packaged them up and resold them to other willing buyers on Wall Street. Among the companies with financial agreements with New Century are some which should know better, like Morgan Stanley, Credit Suisse, Goldman Sachs and others. These giants will be able to absorb whatever shock might occur in a default or bankruptcy by New Century, which seems all but certain, but the damage will spread.
Lenders will tighten up requirements for home buyers, interest rates may hitch up a bit, people get worried and everyone goes home losers. At a time when the economy is cooling off to a significant degree, the last thing the suits on Wall Street need is a soft real estate market, rising interest rates and sour-pussed bankers.
There's a bit of unraveling about to happen and it will only fuel selling into an already unsteady market. Get ready for another 3-4% decline on the major indices over the next few weeks. I've said it was coming and here it is, on a silver sub-prime platter.
Dow 12,318.62 +42.30; NASDAQ 2,402.29 +14.74; S&P 500 1,406.60 +3.75; NYSE Composite 9,120.93 +25.94
As we see from the numbers above, the other indices tagged along for the ride. And what a nice ride it was, though most investors thought better of it. To say that the volume was thin would be overstating the case. Especially on the NASDAQ, it was nothing short of anemic.
But the markets made the best of it, putting on the bravest of brave faces and likely cheering the drop in the price of oil, which fell 1.14 to $58.91, a welcome number for anyone who owns (or is paying off a 6-year loan on) a car.
In the absence of any noteworthy news, little things could make a huge difference in this directionless market. Some of the smallest things are little movements in interest rates, which are heading higher thanks no doubt to the seeming end of easy money, particularly in the mortgage arena. There, a company called New Century Financial Corp. is about to go completely belly up, taking down $8 billion in bad money with it.
What worries Wall Street is that New Century's collapse could cause a tsunami in financial markets. The company specialized in sub-prime loans, or more succinctly, mortgage loans to people who probably shouldn't have them. CNNMoney has a good article on the subject.
New Century originated many of these sub-prime loans, packaged them up and resold them to other willing buyers on Wall Street. Among the companies with financial agreements with New Century are some which should know better, like Morgan Stanley, Credit Suisse, Goldman Sachs and others. These giants will be able to absorb whatever shock might occur in a default or bankruptcy by New Century, which seems all but certain, but the damage will spread.
Lenders will tighten up requirements for home buyers, interest rates may hitch up a bit, people get worried and everyone goes home losers. At a time when the economy is cooling off to a significant degree, the last thing the suits on Wall Street need is a soft real estate market, rising interest rates and sour-pussed bankers.
There's a bit of unraveling about to happen and it will only fuel selling into an already unsteady market. Get ready for another 3-4% decline on the major indices over the next few weeks. I've said it was coming and here it is, on a silver sub-prime platter.
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