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Market Matters A daily recap of all things financial Don Bravo Fools Rush In - April 1, 2005
April began with a rush of buying in the face of a dismal March employment report. The Nonfarms Payrolls added only 110,000 new jobs, while the "experts" were expecting 220,000. Apparently, investors must have figured that half a loaf was better than no bread at all, as they plunged into the markets with abandon on the open, boosting all major averages in early trade.
By 10:00 the buyers were worn out. On display once again was the underlying weakness of the economy, as the labor report hit home. The morning's buying was likely due to funds having excess cash on hand, though not much, as it was quickly exhausted. By 10:30, the major indices had fallen off precipitously and into negative territory.
With significant earnings reports still a solid week away, the markets returned to their month-long funk and vacillated around the unchanged line for a short time before finally capitulating fully shortly before 11:00 am.
For the rest of the day, the Nasdaq and NYSE Composite languished in a fairly narrow range to the downside. The Nasdaq finished lower by 14.42; the NYSE was down 31.17 to close at 7136.36.
Market breadth was again mashed to the downside, as declining issues outnumbered advancers nearly 2-1 on the Nasdaq and very narrowly, by a mere 53 issues on the NYSE. New lows were once ahead of new highs on the Nasdaq, 118-54, but new highs scored narrowly over new lows on the NYSE, 58-56, though volume on both exchanges was decidedly in the red, by more than 2-1 overall. The total number of shares changing hands on the NYSE was once again more than on the Nasdaq, and trading was moderately heavy.
Besides the poor jobs report, the averages were coaxed lower (the Dow registered a 99 point loss) by higher prices for oil, which leapt over $57 per barrel on the NY Merc and stayed there, closing at $57.27.
Despite the poor economic news, gold and silver were sharply lower, while the dollar rallied overseas. The higher dollar did little to salve the wounds incurred by the stock markets, however, as the averages began the quarter on the same note as the last one ended, with a whimpering lower close.
The damage to the markets over the past four weeks has been severe, and investors are hopeful - though all optimism is closely guarded these days - that earnings season will brighten the picture. Alcoa officially kicks off the earnings extravaganza on Wednesday of next week with its official 1st quarter results. Whatever good news does happen to come from quarterly reports, the figures will be darkened by the long shadows cast by the current account deficit, the federal government deficit and the ever-increasing price of oil, which closed at yet another record high today.
Mixed Messages, Mixed Markets - March 31, 2005
The two composite indices closed in mixed fashion on Thursday, with the Nasdaq again taking the worst of it, closing down 6.44, below 2000 again, at 1999.23. The NYSE, meanwhile, posted a modest gain in the face of conflicting data (more below), up 9.03, to close at 7167.53. The Dow was lower by 37.17, effectively snuffing out yesterday's hot rally.
The news that moved the markets today was apparently confusing to analysts and investors. Prior to the open, the Bureau of Economic Analysis of the Department of Commerce released data on Personal Income, which rose 0.3%, less than the "experts" predicted, but still an improvement of last month's dismal revised reading of -2.5%.
At the same time, the Labor Department dropped a bit of a bombshell with an unexpected rise in initial claims, to 350K new unemployment applicants. Naturally, this casts a shadow over tomorrow's release of the much-anticipated nonfarm payroll figures for the month of March.
Optimists are expecting that there were 220,000 new jobs created in the month, though anecdotal evidence suggests that number may be inordinately high.
Other confusing data came in the form of the Chicago Purchasing Manager's Index and the Factory Orders data. The PMI hit a multi-year high of 69.2, suggesting strong expansion in manufacturing. At the same time (10:00 am Eastern), Factory Orders suggested widespread stagnation, as the reading was up only 0.2% for February, on the heels of a flat 0.0% reading for January.
Investors chewed over all this data and mostly did little, as the indices bounced around the flat line in a narrow range, typified by choppy trade.
What certainly didn't help matters was the action in oil futures, which spiked back over $55 a barrel. The persistence of high energy prices is one thing which all analysts and economists agree upon - it acts as a drag on growth and productivity of the economy. What is a matter of some dispute is how much of a drag higher prices will be, especially in regard to manufacturing and consumer spending. On the latter, a higher gasoline price acts as a tax on consumers - one which nearly everyone pays - and reduces discretionary spending. Higher prices for gas also has some effect on anything - which is almost everything - which needs to be transported.
So, there, in a nutshell, is the muddled picture of an economy which is, to borrow a phrase from the erudite John Maudlin, muddling through. Every time new data suggests expansion, another data set displays underlying weakness. It's a damnable condition and one in which the correct posture by the Fed, in my opinion, should be neutral. Instead they continue to raise rates, and even couch their world-changing basis point moves in cloudy, barely-understandable rhetoric.
Their latest manifesto was clear enough to some as to suggest tightening at a faster rate - just what a stock market mired in a deep decline needed. It's become plain to many that the Fed governors are about as clueless a bunch as could possibly be assembled. They continue to guide the economy from one bubble to the next, all the time posing as though they know what they're doing. Note to investors: Central bankers can severely damage economies.
As for the breadth metrics for today, the A/D line on the Nasdaq was even, while advancing issues outdid decliners by a 5-3 margin on the NYSE. The NYSE also managed a rare win for new highs, beating out new lows by 45-40. On the Nasdaq, new lows again outnumbered new highs, by 96-50. Bond prices rose, depressing yields, with the 10-year settling at 4.47%, down sharply from last week's high of 4.59.
Meanwhile the dollar took a hit, especially against the Canadian Loonie, British Pound and Mexican Peso as gold added $1.30, but is still languishing below $430, at $427.50.
All of this conflicting data will come to a head tomorrow morning, prior to the open in New York, when the March nonfarm payroll data is released. Tomorrow could, and probably will, be a day worthy of close inspection, as the market will make a major move in one direction or another. It's also April Fool's Day, so beware of false reports.
At Long Last, a Rally - March 30, 2005
After being mired down by extraordinary selling pressure for nearly four weeks, the indices showed a bit of resiliency today, shooting upwards in the morning and remaining positive all day. The widely-watched but barely significant Dow added a healthy 135.23 points; the NYSE gained 87.97 and the Nasdaq was ahead by 31.79, closing above the 2000 mark for the first time in the last six sessions, at 2005.67.
Questions remain, however, as to how significant the one-day effort will prove to be. While the buying was broad-based, two significant trends remained in place. Share of stocks on the NYSE continued to attract more attention than the Nasdaq - for the 8th straight day - and new lows easily outstripped new highs on both exchanges, 52-26 on the NYSE, and 89-33 on the Nasdaq.
Nevertheless, volume was heavily on the buy side of the equation, with up volume clocking in at 82% on the NYSE and 80% on the Nasdaq. The down volumes were 16% and 12% respectively. Advancing issues finally had their day in the sun, by better than a 3-1 margin on the NYSE and slightly better than 2-1 on the Nasdaq.
As impressive as the gains were, there is still plenty of work to be done by the markets, as a one-day event has never been indicative of a trend. The markets were supposedly spurred upward and onward by the reiteration that GDP grew at a revised 3.8% in the 4th quarter of last year, though the argument that old news would become a cause celebreĽ may be stretching the truth just a tad. More likely, the markets were simply short-term oversold and bingers went bargain-hunting. There surely was also a fair share of short-squeezing and probably a grand degree of window-dressing by funds seeking to entice new buyers by dumping dogs and adding new darlings to their portfolios.
Overall, this one-day bump was predictable and expected, as well as being long overdue. For example, prior to today's blast higher, the greatest one-day gain for the Nasdaq since the beginning of the slide on March 7 was 9.44 on March 14. The other four days during that span that the Nasdaq closed on a positive note, the gains were each less than 2 points.
The bond traders took the day in stride, flattening the curve as yields on the long end fell, while the 2-year remained flat. The precious metals market also showed little enthusiasm either way as gold fell 0.10 on the spot market, while silver lost 2 cents. Crude oil was also little affected, closing .17 higher, at 54.16 per barrel for light sweet. The dollar was essentially unchanged against other currencies.
The true test for this market comes tomorrow, when figures for Personal Income are released prior to the market open, and Friday, when the March Nonfarms payroll data comes forward, also prior to the opening bell.
Judging by the relative non-movement in the other indicators, today's rapid rally was probably much ado about nothing. It will take more than a rally which appears out of so much thin air on excessively oversold conditions, to get stocks moving in a concerted, organized positive direction.
Downside Risk Prevails - March 29, 2005
Stocks continued their relentless slide Tuesday with all major averages dropping nearly 1% in value. The Dow Jones industrials lost 79.95 (-0.76%), the Nasdaq fell 18.64 (-0.94%), while the NYSE Composite dropped 60.99 (-0.86%). All three are now firmly in the red for 2005 and prospects for the remainder of the year and 2006 are not very appealing. Rising interest rates, an economy seen as slowing, tapped out consumers, the federal government deficit, an enormous trade imbalance, and the slowing of the red hot real estate market all add to the mix and will feed upon each other.
The impact of these swirling forces can be quite dizzying and investors are taking their money and heading out of town. Today's action was seen as a precursor of what's to come later this week when the government releases key data. The final GDP figure (already revised upward from 3.1% to 3.8%) comes out at 8:30 am tomorrow; on Thursday, personal income and factory orders are announced; and on Friday, non farm payrolls and the official unemployment rate complete the economic data trifecta. In light of today's one-sided affair, few are expecting good news.
As has been the trend, the NYSE was more active than the Nasdaq (for the seventh consecutive day), the A/D line was negative (losers outpaced gainers 11-5 on the NYSE and 11-4 on the Nasdaq), as was the New High - New Low data. New lows were again ahead of new highs, by 90-25 on the NYSE and 132-44 on the Nasdaq.
Since i stated last week that a major sell-off could occur at any time, I'll repeat the warning, though nobody should need to be reminded of the immensity of the slump, now in it's fourth week and showing no sign of ending any time soon.
The Dow is off over 500 points, the NYSE, 370, both since March 4, and the Nasdaq has shed 117 points since March 7.
Bonds firmed up slightly, oil was modestly higher and gold was unmoved while the dollar was down against most other currencies. The focus, however, was clearly on the bellwethers of the American economy, those stocks represented on the major indices. Make no doubt, there was three times the down volume than up volume across the board.
Sick Market Can't Hold Gains - March 28, 2005
In yet another sign that the US economy is in a very, very precarious position, the Nasdaq and NYSE Composite both posted tiny gains with the resumption of trading after the long holiday break.
The Nasdaq added 1.46 (that's points, not percent), and the NYSE gained a paltry 2.72. Both indices were significantly higher at mid-day, but nervous (or wily, depending on your bent) investors sent stocks skidding to their session lows as trading ground into the lackluster close.
Volume was rather on the weak side, especially on the Nasdaq, which once again was outdone by the NYSE, the sixth straight day for that particularly upside-down metric. I reiterate, this is an ominous trend. The malaise that has stricken primarily tech stocks has now found its way into the mainstream.
Not to sound like a broken record, but the breadth numbers do not lie. Declining issues again led gainers on both exchanges, though narrowly, 9-7 on the NYSE and 8-7 on the Nasdaq. New lows were the order of the day as well, with the lows outnumbering the new highs, 72 to 35 on the NYSE and 85 to 53 on the Nasdaq.
Both markets seem to be running close-out sales on equities of all stripes, somewhat akin to the cheesy Wal-Mart ads which warn, "beware of falling prices." This is not a good environment to be making bets and today's smallish volume bears that out. Investors would be hard-pressed to find any individual stock or sector that has the look of either being undervalued or possessive of upside potential. The market is a rolling avalanche and everything is being hauled under, seemingly by the force of gravity, but more likely by overvaluation and a poor outlook.
On the brighter side, the dollar was up again as bonds slid, raising yields. This is acting as a hedge, or a wedge, against inflation, which is exactly what Greenspan and his fellows at the Fed intended when they began raising interest rates seven meetings ago. Unfortunately for them and most Americans, rising interest rates generally act as an anchor on business vitality. And, of course, it makes borrowing money a little more of a task and a little more expensive.
It should not surprise anybody if the Fed continues tightening via higher interest rates all the way into a recessionary spiral. The first sector to be hit will doubtless be real estate, wherein asset appreciation has been notably sprightly over the past four years, though one could easily argue that equities have taken the lead, auguring ill for the general economy. Real estate being a bit less volatile and liquid, I suspect we have already seen the top in many market areas, especially the Northeast and Midwest, as mortgage rates have begun to ramp up.
Ahead this week are two key economic reports. February Personal Income comes out on Thursday, while the February Non-farm Payroll data is due for release on Friday. Analysts expect another solid increase of 220,000 new jobs for the month. Personally and professionally, I think the jobs data is pure hokey due to how the numbers are massaged and misrepresented, and suspect that the labor market is less than healed from the last recession.
Nonetheless, investors are cautious and possibly hopeful. The good ones have already sold and the really smart ones sold and bought gold, which remains at bargain levels around $425.00 per troy ounce. Gold has been in a funk of late, but there's a serious floor around $412-415, and the lustrous metal is due to resume it's multi-year rally some time soon. Silver is also relatively cheap, some say too cheap, relative to gold. What's not cheap is certainly a barrel of light sweet crude oil, though it dropped a bit today and is hovering at just over $54/barrel. That's still a far cry from where it was a year, two years, five years ago.
Spring has sprung, and with it renewed hopes for love, joy and prosperity. Spring also brings April Fool's Day (this Friday), and tax deadline day, though US tax freedom day (the day upon which the average American worker has worked enough to pay his or her taxes for the entire year) is still far off on the horizon.
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