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Traders Calm Before the Storm - Money Matters for 9/23/05 Don Bravo | 9/23/05
As hurricane Rita made its way inexorably toward the Texas/Louisiana coastline, traders breathed bit easier as the monster storm (the size of Michigan) continued to decrease in intensity from a category 5 to a category 3 hurricane.
The general consensus was that Rita would do less damage to oil and gas refinery interests in the Gulf of Mexico than previously feared and that the states and federal governments had done a better job of preparation in this case.
Additionally, the track of the storm seemed to indicate that the eye and storm surge would miss Galveston and Houston, the most densely populated areas in Rita's path.
With those caveats in hand, traders took a light handed approach, with volume on the major indices eerily sluggish.
Cooler heads were also in control on the commodity bourses, where oil and gold were down sharply. Light sweet crude, which was trading near all time highs close to $70 earlier in the week closed at 64.19 on the NY Mercantile Exchange. Gold, which hit 17-year highs this week, trimmed more than $3 off the price of an ounce of the shimmering metal.
The prevailing strategy on the final day of trading for the week was a simple wait-and-see, with the majority of traders choosing to ride out the storm, so to speak, over the weekend and make the appropriate moves on Monday.
For the week, however, the major indices took a beating. The Dow dropped over 200 points, the Nasdaq was trimmed by 44 and the NYSE dipped 127.
The only place there was any activity of note was in Treasuries, with the yields on all maturities making substantial moves. Continuing to be of note is the proximity to an inverted yield curve. The 2 and 3-year varieties are now at .01 divergence, with the twos at an even 4% and the threes at 4.01. Not far off is the 10 year at 4.24%. The yield curve has continued to consistently flatten out over the past 6 months with no end to the pattern in sight. An inverted yield curve - where short term yields are higher than longer maturities is a 100% correct indicator of a coming recession. If this metric is even close to correct, the US economy could be in for a serious contraction, and soon.
Food for thought for a hopeful nation...
Dow Jones: -2.46; 10,419.59 close
NYSE Advancers: 1700
Nasdaq Advancers: 1857
NYSE New Highs: 86
Nasdaq New Highs: 104
Gold: -3.10; 467.20 close
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