What was the main reason for the market’s huge decline? It was a report that signaled the service sector contracted last month (data provided by the Institute for Supply Management). This was just more evidence suggesting the economy is slowing/in a recession. This is the first reading showing a contraction since March 2003. Investors have been way too optimistic since the Fed cuts. This data definitely washed some bulls out of the market. The effects of the Fed cuts won’t be felt for at least a few months, so expect more bad news (earnings and economic) to come.
According to finance.yahoo.com, Fitch Ratings (a bond rating agency) plans to lower its rating on more than $100B in CDOs (collateralized debt obligations). This news weighed on many of the financials stocks. What does a downgrade mean? The companies’ securities (many of which are back by sub-prime mortgages) are worth much less than previously thought. Here is an in-depth article from Bloomberg.com explaining this matter.
One observation I had today: stocks opened lower and continued their decline until the close. Bonds, however, opened higher but sold off as the day progressed. Usually, bonds move inversely to stocks. Bonds tend to move mostly off of economic data while stocks move mostly off earnings (and economic data).
According to briefing.com, “the dollar gained 1% and its strength was attributed to a belief that weak economic data out of
Futures are currently pricing in a 30% chance of an intra-meeting 25 bp cut and 100% chance for a 25 bp cut at March’s meeting.
The homebuilders (Pulte Homes, KB Home, and Toll Brothers) were up after an upgrade from Banc of America Securities. Also, Goldman Sachs was downgraded by Oppenheimer & Co. Las Vegas Sands and Wynn Resorts were both upgraded by Morgan Stanley.
According to Bloomberg.com, of the 311 companies in the S&P 500 already reported, earnings have declined 23 percent year-over-year.
In earnings news, Whirlpool beat estimates and was up huge on the day. This report was quite surprising given that the economy has slowed and the consumer has cut back on big ticket items.
After the bell, Disney was up about 6% after beating analysts’ estimates.
Today, the negativity came back to the market. We almost have the same feeling we did a few weeks ago. Investors are looking for more rate cuts and waiting for more bad news from the financials. Tomorrow after the bell, Cisco reports – this report will be huge for tech because this sector has struggled mightily this year.
Welcome to the markets were going to be in for a few months... they're PMSing on us. It's going to be mood swing city. Bellz wrote a phenomenal article I just want to emphasize one point. We got a really bad piece of economic data in the service report, so what? No, we got an AWFUL data point. This essentially set the new low end for this scale. On top of that, services make up well over half of our GDP. This is bigger than any manufacturing data.
ReplyDeleteThe data pretty much cinched up recession, now the question is how long. You're going to see these oscillations between overbought and sold. It's a trader's market, not an investors but if you know what you want to own, it's a great time to be patient and watch it come to you.
To be somewhat cheerful: Disney's quarter was DISGUSTINGLY good. I love mickey