Wild, wild week!

Stock markets, highlighted by financial stocks, just went thru a major sell-off followed by a sharp rally in the last few trading days. Financial stocks got the most attention, even more than energy & energy stocks. This year, they've gone from one new low to another with seemingly no end.

The S&P Financials Index, shown on Bloomberg (their symbol for it is S5FINL), went from a high of 510 in May 2007 to a low of 230 last week (more than a 50% decline) followed by a sharp rebound to 280 Fri. The moves are similar to Bank of America (BAC) stock performance even though its had more exaggerated moves, shown below (note high volume recently):

BAC stock has done well, from the 20s in the early part of the decade to the 50s last year. As a member of the S&P 500 Dividend Aristocrat list, BAC had yearly increases with a nice one 12 months ago. Since the peak in early 2007, it had a slow & then a sharp drop to last week's low of 18½ where the stock yielded almost 14% (for those who believed in the div). The 3 day rebound brought the stock back to the what had been a “new low” price reached a month ago. The rebound came on high volume as show below:

Banks have gone thru a lot, especially this year, mostly negative news stories. All major banks operate under a dark cloud which varies from one to the next, but each one has a cloud overhead. A week ago, the banking system had its first failure in what must be at least 20 years. There haven't been any (or many) because a large bank was always available to take over the weak one, then life went on. That concept is barely alive today. The FNM/FNM situation & confusion about their survivability during the credit crisis adds to uncertainty for financials. That's been a lot for investors, whether experienced or novices, to absorb causing wild swings on big volume.

Meanwhile, economic problems drone on. In 1980, the economy had to deal huge numbers for inflation & unemployment while contracting. The combination of events was called stagflation, all economic measures were going wrong. The world is not as ugly today. By comparison, inflation & unemployment are more moderate while the economy is eaking out growth. However, they're ugly enough to drag down markets this year & looks like these conditions will continue.

The depression in housing & autos affects a lot of businesses & workers. Masco (MAS), another member of S&P Dividend Aristocrat list, will eak out their 50th consecutive annual div increase this year (by one penny). If continued, Q4 will be above the prior year by that penny. But they indicate earnings will not cover the current div. Remaining on the list next year is unclear. It will be sad if they are forced to break their 50 year track record next year. While this is just one small story among a great many, it's indicative of tough times the economy is going thru causing stocks to sell off in 2008.

I haven't seen the extreme fraidy cat lately, the black one living most of his life under the futon or in a closet. Maybe that's his way of saying we should be cautious, at best, going forward. More earnings reports will be issued this week including BAC on Mon. By weekend, they will announce the next div (the one they traditionally increase). If earnings are less bad then dreaded, chances are they will have an increase even if it's limited. The earliest signals for this week are the New Zealand market opened higher & pre-trading for Australian stocks is showing a 1% increase suggesting markets will start on a positive note.