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Markets Open Dull, Finish With a Bang - Money Matters for 1/3/06
Welcome to 2006. Nothing's changed.
Apparently, Wall Street got the memo, but by 2:00 the message was completely disregarded. As soon as word got out that the Fed probably wasn't going to raise rates much more (according to the minutes of their last meeting, which was released to the public at 2:00 pm ET) stocks began to rise off the flat line, and they did so with the kind of enthusiasm not seen in over a month, ending the day with spectacular, broad-based gains.
The perplexing thing about this sucker rally - and it was a sucker rally, as most first-day-of-the-new-year rallies are - is that it was based on information that was already widely known. Even the average investor figures that the Fed isn't going to raise rates beyond 4.50-4.75%. The key rate is already at 4.25, there's another meeting this month, and then Greenspan steps down and targeted-inflation devotee Ben Bernanke takes over as Chairman of the Federal Reserve. And anybody who's anybody knows that Mr. Bernanke isn't going to hike rates to control inflation.
Since this information was already known in the marketplace, one can only assume that this was a contrived, fake and phony rally based on giddiness and an overabundance of optimism or sheer chicanery. But, the shysterism that pervades Wall Street these days is all about perception, not reality. A big gain on day one sets an upbeat tone, and since the first week of trading is supposed to provide a forecast for the remainder of the year, the markets got a big leg up today in a shortened trading week.
Whoopee! Happy days are here again...
So why was there no Santa rally last week? Or the week before that? And what happened with crude oil. Up another $2.10 per barrel. I thought Wall Street was worried about high energy prices.
The answer lies in the psychology of the trading set, who for the main, are permanently and forever bullish on stocks and the US economy. Sadly, they are often deluded by their own wishes for unbridled wealth and prosperity. Stocks go up and down and sometimes sideways, and there are usually good reasons for big movements in stocks and they usually don't happen all in one day. The discernible signs of a bull market are typically long, steady gains, not one-day, one-shot wonders like the move today.
I'd be wary of this event, especially with more important data due out this week, such as weekly retail sales (Wednesday), monthly retail sales (Thursday) and the monthly employment report from the Labor Department (Friday).
Stocks go up; stocks go down. There's a very good chance that today's bulge will be nothing but a forgotten aberration by week's end.
Dow Jones: +129.91; 10,847.41 close
NYSE Advancers: 2520
Nasdaq Advancers: 1906
NYSE New Highs: 216
Nasdaq New Highs: 120
Gold: +13.60; 532.50 close
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