September was one the ugliest months for stocks. Dow dropped 700, NAZ & S&P 500 did even worse in terms of percentage decline. Oct is beginning wishy-washy in what is one of the most confusing backgrounds markets have ever had to deal with.
In just a couple of days, the House rescue package was shot down & very decisively. After the dramatic stock market sell-off on Mon, stocks rebounded from their vastly oversold condition on Tues (month/qtr end which adds extra unknowns to trading) but clearly remain on defense. A revised bailout package seemingly will be passed by the Senate tonight and maybe the House will also pass it in a couple of days. The thought from just a couple of days ago about Wall Street vs us has gotten blurry with over $1T in market losses on Mon. It is not clear exactly what is in the package or whether it will actually "work" in terms of providing meaningful aid to a sick economy. Sadly the economy is made sicker as the uncertainty about financial markets drags on. I am constantly reminded: a camel is a horse designed by a committee. Those thoughts, maybe in different forms, must be in traders minds as I am write.
General Electric, a Dow stock & member of the S&P 500 Dividend Aristocrats, also near a multi year low stock price of down 1 at 24½, is raising $15B to help keep its elite AAA credit rating. Meanwhile everybody is keeping a close watch on DC to find out what new regulations will be approved.
•GE Gets $3 Billion Buffett Investment, Plans $12 Billion Common Stock Sale
•Senate Leaders Predict Approval of Rescue Plan, Urge House to Support Bill
Today Dow ended down 20, decliners over advancers by about 20% & NAZ is down 22 (on even more confusion about where this leaves tech companies). The Dow was down 200 earlier in the day but recovered in the PM. S&P 500 FINANCIALS INDEX is up 6 today to 276, remaining in the same trading range for the last 3 months. The Dow Jones REIT index is down 7 to 244. The VIX (volatility index) is down a little to 40, remains in astronomical land from all the nervousness in all markets.
In the confusion, the concept of flight to safety has gotten muddled. Oil is down 2 to the 98s while gold is up 6, largely based on emotions. The Alerian MLP index is up 2 to 228, remaining near multi year lows.
Macro economic numbers keep coming, they are not pretty & do not look like they will get better (the unemployment report is due on Fri).
•Manufacturing in U.S. Contracts at the Fastest Pace Since Recession in '01
•Toyota, Ford, Honda U.S. Sales Fall as Credit Tightens; GM Beats Estimates
Gloomy news should be the main force driving markets. The economy is very weak & difficulties for businesses to simply function will bring on more layoffs & a further slowdown. Unemployment is getting worse, inflation may moderate a little, I think exports may go a little soft and it looks like GDP will contract. However, Congressional actions are getting 90% of traders' attentions while the economy drifts.
I wish these were happier thoughts, but these are unusually tough times. There are parallels to 1929, however this is lot different. Just unemployment, at 6+%, while bad, doesn't begin to compare with ugly numbers in those days. We will get thru this difficult period. These times should be used productively to prepare for buying opportunities which are coming.
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