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Market Matters A daily recap of all things financial Don Bravo A Bounce Worth Noting or Nothing At All? - April 29, 2005
Once again the indices put on the bravest of faces for Friday. With little economic news the upside move was eerily similar to Wednesday's. Amazingly, as downright bearish the markets have been, the Dow managed to show gains for the second consecutive week though they are hardly worth reporting. The NYSE and Nasdaq both ended up for the day but down for the week.
Here's how the exchanges ended:
Dow: today +122.14, week +34.80, close 10192.51.
While the advance-decline lines in on the two major exchanges - NYSE, 2-1; Nasdaq, 3-2 margins - were in-line with the general mood, the new highs-new lows matrix was once more decidedly negative. There were 42 new highs and 137 new lows on the NYSE and the margin was even more extreme on the Nasdaq where the 224 new lows overshadowed 26 new highs.
The treasury yield curve flattened again today, as the 2, 3, and 5-year maturities rose 9 basis points, the 10-year rose 6 and the 30-year rose only 3. The spread between the 2-year and 10-year is now 57 BPs.
Today's equity rally was naturally tied to lower oil futures, which ended down 2.12, at $49.72, the first time in two months that oil dipped below $50 per barrel. Gold rebounded from yesterday's unlikely decline, with the yellow metal up 3.70 to $436.10 while silver lost a penny to $6.94. The US Dollar was mixed against a basket of currencies.
Two items not widely reported today do not augur well for the overall economy's future prospects.
The World Trade Organization (WTO) has approved sanctions in the form of penalty tariffs on certain US exports to the Europe Union and Brazil, Canada, Chile, India, Japan, Mexico and South Korea. The sanctions stem in response to penalties imposed on imports to the US under the Byrd Amendment. The bill, signed into law in 2000, allows US companies to receive the penalties imposed by the government in cases where a US company successfully argues that a foreign competitor is selling at unfairly low prices.
Read the full AP article HERE.
The other item which largely fell beneath the national radar are new, higher minimum credit card payment requirements imposed by the U.S. Office of the Comptroller of the Currency (OCC). Today, minimum monthly payments are set at 2%. By summer, all credit cards will require 3 to 4% minimums.
Read full article HERE.
The trade sanctions will surely cause economic distress for those companies selling in the countries mentioned, while the higher minimum payment requirements will affect discretionary spending in a negative manner.
The unwinding of the US economy's many near-sighted, stop-gap economic measures continues apace.
Is Anybody Getting the Message? - April 28, 2005
The course of today's trade was entirely - as it has been pretty much for the past 7 weeks - in one direction. Down. Once the GDP report was released prior to the market open, the table was set. It was then just a matter of the Bears getting down to chomp on some savory stocks. And they certainly had plenty to chew on.
A healthy share of the Dow Jones Industrials was devoured, as that average was gnawed down by 1.26% - a 128-point loss - to close at 10070.37. The NYSE was not spared, serving up a loss of 74.90. It closed at 6935.37, its lowest level since November 11, 2004. The Nasdaq continued to be a favorite feast, as that index was chewed down by 26.25 points, closing at 1904.18, it's lowest level since October 14, 2004.
The Nasdaq, in particular, is nearing a key support level in the 1885-1890 range, signifying a 33% retracement of the gains earned from March of 2003. While it may bounce around that level for a short while, it continues to gravitate lower, as investors become more and more risk-averse. Many Nasdaq stocks are flush with high price/earnings ratios and bold valuations, so the collapse of share prices seems almost inevitable.
The continuing dynamic of more shares being traded on the NYSE than on the tech-laden Nasdaq also continues to indicate a preference for more mainstream issues.
But while the Nasdaq may be nearing a bounce point, make no mistake that all flavors of US equities are now clearly marked for continued price deterioration. The NYSE and Dow issues are heading into a free-fall zone, with no discernible support levels. Indeed, the 33% retracement level for the NYSE is still 400 points below today's close.
Market metrics were all on the extreme negative side. Declining issues outnumbered advancers by an 11-5 margin on the NYSE and nearly 3-1 on the Nasdaq. Down volume was 4 times as great as up volume and new lows swamped new highs by 144-32 on the NYSE and 217-29 on the Nasdaq.
All of this sets up for a very dramatic close to the week. Despite relatively good earnings reports, 1st quarter GDP growth checking in at a paltry 3.1% (the real figure is probably quite a bit worse and everybody knows it) sent a cold shiver of recessionary warning through the markets. While nobody is actually saying that we're headed for one, all the elements are in place. Consumers are tapped out, job growth is anemic at best, inflation is not tame and untamed oil prices threaten the entire economy.
The term, "soft patch" has been making the rounds recently to describe the current economic conditions. It's almost laughable to some, this writer included, as the only soft patches to be found in America seem to be those on the heads of our President and Chairman of the Federal Reserve. One can't see the virtue in at least trying to reign in excessive federal spending while Mr. Greenspan can't understand how years and years of easy credit might have contributed to the fix we're in.
When one's house is in such a state of disarray as that of the US government's, many bad and unforeseen consequences may develop. We are on the crux of those consequences at the moment of truth. The US economy cannot sustain the polices we've entertained without expecting some corrections, contortions and disruptions and the stock markets are the primary places where these will be manifested.
It's going to be a very interesting 6-18 months and I believe many will not appreciate the market's tone and direction very much unless some action is taken to ameliorate some of the distortive aspects of the economic landscape.
On the news that the economy was growing at its slowest pace in 2 years, bonds rallied sharply, especially at the 3, 5 and 10-year maturities. The spread between the 2 and 3 year yields narrowed to a minuscule 7 basis points, indicative of the perverse economic forces at work. The bond spread is becoming increasingly flat and approaching inversion at an accelerated pace. An inverted curve, where short term rate are higher than long term, is a sure sign of a recession, so the bond markets are telling us, with all due clarity, just how close we are - very close.
Oil was marginally higher on the day, the US Dollar traded all over the map, while gold and silver, in the oddest trade of the day, fell sharply.
Durable Goods Drop, Investors in Denial - April 27, 2005
This morning's news that Durable Goods orders dropped by a 2.8 percent in March - the largest such decline since September 2002 and the third straight negative reading for durables - seemed to only affect stocks for the first hour of trading.
While the major indices stumbled out of the blocks and hit their lows of the day early on, the markets reversed course over the next three hours of trading. The Dow, in particular, began a series of short upward bursts of 35-50 points starting at 10:30.
These spikes are clearly defined in any daily chart, and the first one was followed by three more, one at 11:15, then again around noon and finally at 1:00.
By the time the manipulated trade was done, the Dow had been taken on a 140-point ride, from the low of the day at 10079 to the high of 10219. After 1:15 the index drifted in a narrow range to close at 10198.80, up a respectable 47.67 points.
The Dow, up 0.47%, handily beat out the broader indices in percentage terms. The Nasdaq ended up only 2.99 (0.16%), while the NYSE actually closed lower by 1 point.
While the durable goods orders was possibly the worst economic report to come to the street this year, investors in Blue Chip stocks were apparently more concerned with the price of oil, which fell dramatically, down $2.59 to $51.61 on the New York Mercantile Exchange.
So, according to blue chip stock buyers, it doesn't matter if cars, trucks, airplanes, refrigerators, computers and heavy machinery aren't selling. As long as oil stays below $55 a barrel, everything's just hunky-dorey.
Rubbish. Balderdash. The durable goods orders are a critical component of the American economy. And not only was the 2.8% drop in March substantial, the Commerce Department also revised last month's 0.3% gain into a 0.2% loss, following January's decline of 1.2%. Additionally, the last time durable goods orders fell three consecutive months was back in the summer of 2001.
As memory serves, the investment community was in denial back then as the fact that we were actually in a recession didn't become a known fact until months later, after the 9/11 disaster. Indeed, the Dow traded as high as 11337.92 on May 21 of that year, and stayed above 10,000 until August 29.
Contrary to popular belief, 9/11 did not cause the collapse of the market by itself. In the seven trading days from August 30 to September 10, the Dow fell 485 points and was a full 1700 points off the May highs. The five trading days after 9/11 resulted in further declines of 1370 points, finally bottoming out at 8235.81 on September 21.
If history doesn't repeat, it sure has a familiar ring. The durable goods orders decline, lack of solid corporate earnings and other less-than-inspiring economic news should be taken with considerable seriousness. After a look at today's Dow, it's obvious that they aren't and that Wall Street has once again divorced itself from reality. As I've said here repeatedly, individual investors should be out of this market completely because the potential for a catastrophic collapse are now higher than ever. Besides, the markets have had a bearish slant for nearly two months now, and show no sign of reversing course.
Market internals, which were dreadful early this morning, ended mixed. Advancers narrowly beat decliners on the NYSE, while the opposite held on the Nasdaq. The lonely new high - new low reading, the sole reliable metric on the market, continued to read negatively. On the NYSE, there were 124 new lows and 41 new highs. The Nasdaq figures were devastatingly bearish, with new lows overwhelming new highs by a 203-27 mark.
Precious metals, following oil's lead, closed lower, while the US Dollar edged higher against most currencies except the Ruble, Yen and Brazilian Real. (My trade of the decade is to swap US Dollars for Brazilian Reals)
Don't Bet the Ranch - Stocks Record Another Down Day - April 26, 2005
In the ongoing decline that we like to call the US economy, stocks took another in a string of nose-dives today. The Dow lost 91.34, the Nasdaq dipped 23.34 and the NYSE Composite was off by 60.65 points.
Not helping very much was the report on new home sales for March from the Commerce Department showing an increase of 12.2% over February. Another contributing factor was the Consumer Confidence report issued by the Conference Board, which slipped to 97.7 in April from 103 in March, the lowest level in five months.
As investors patiently await the next Fed meeting - a week from today - the slippage in share prices continues mostly unabated. Once again, market internals approached desperate levels as sellers held sway. On the NYSE, advancing issues were overwhelmed by decliners by a more than 2-1 margin, with roughly the same ratio on the Nasdaq. New lows numbered 84 on the NYSE, 151 on the Nasdaq, while new highs paled in comparison, at 35 and 36, respectively.
All other markets were modestly moved in one direction or the other. Bonds gained ever so slightly; oil dropped 37 cents, while gold and silver posted marginal gains, as did the US Dollar.
Earlier in the trading day, American Express (AEX) reported a 19% growth in earnings over the same period a year ago. Shares of the card and financial services company gained 58 cents on the day.
Chemical giant, Dupont (DD) reported better earnings overall for the 1st quarter but still fell short of analyst's estimates. The firm reported .98/share earnings, up sharply from the same period in 2004 (.66), but missed the estimates of 1.01. Shares were dashed on the news, with the stock dropping 1.55 to close at 47.03.
Tomorrow being the middle of what may turn out to be a very decisive week on Wall Street, investors may find themselves fixated on the overall health of corporate earnings, as the only economic report with be Durable Goods Orders, which is seldom given much weight, though with the recent downturn in the automotive sector, a poor reading may spark even more pessimism than is already prevalent.
Another Day, Another Dollar - April 25, 2005
US equity markets had a nice bounce to them on Monday with traders hoping to establish a trend of rising prices. The Dow Jones Industrial Average gained 84.76 to close at 10242.47, still far below the highs reached just seven weeks ago when the Dow was threatening the 11000 level.
Stocks on the Nasdaq also received a needed boost and actually led all the exchanges in percentage gain. The tech-rich index added 18.59 points to close at 1950.78, while the NYSE Composite chimed in with a gain of 56.01 to close at 7071.86.
The rising prices were likely more due to temporary oversold conditions than anything else, as the markets have been taking a beating recently and investors were eying perceived bargains. Whether they were correct in their estimation of stock values will remain to be seen, as the usual slowdown in stock market activity is fast approaching with warmer weather gaining across the states and corporate earnings reports for the 1st quarter winding down.
Market internals were in line with the gains. Advancing issues outpaced decliners by 12-5 on the NYSE and 3-2 on the Nasdaq. New lows overwhelmed new highs on the Nasdaq, 116-39, while the margin was much narrower on the NYSE, 52-49.
The bond market was mixed with the long end rallying, dropping the yield on the 30-year treasury to 4.55%. The short end was lower, boosting the yield on the 2-year to 3.61%. The curve continues to slowly flatten and trend towards inversion.
Oil, thanks in part to President Bush meeting with Saudi Crown Prince Abdullah, dropped 82 cents to 54.57. Gold and silver both were up marginally. Gold gained .20 to 435.80, while silver ended the day at 7.26/oz.
The dollar gained against all currencies except those of Brazil and Mexico.
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