6.26.09

6.26.09

          Similar to last week, stocks tumbled Monday but managed to recover to finish little changed for the week. Indeed, the first session of the week proved to be challenging for equities, as investors sold heavily after the World Bank said that it expects the global economy to contract by 2.9% this year. This caused the S&P 500 to shed 3.1% on the day. Despite a disappointing report on home sales, the bleeding stopped Tuesday as stock prices stabilized ahead of a much-anticipated Fed meeting. As expected, the U.S. central bank announced Wednesday that it was leaving interest rates unchanged.

          Coupled with an unexpected jump in durable goods orders and a better-than-anticipated earnings report from software giant Oracle, the news helped the markets turn higher, with the Nasdaq Composite posting a 1.6% gain. The rally continued in earnest Thursday, as all major averages jumped over 2% on increased volume. Investors brushed aside news that weekly jobless claims came in worse than expected and were instead encouraged by an upward revision of the first quarter's GDP number.

          Stocks finished the week with a quiet session Friday that allowed them to retain their gains of the previous days. Volume for the Nasdaq Composite topped 3.5 billion shares, as the annual rebalancing of the Russell indexes distorted trading volume. Trading volume on the Nasdaq reached a record high at the close as etf’s and mutual funds indexed to the Russell 1000, 2000, or 3000 sold the exiting stocks and bought the replacements. There were 427 stocks replaced.

          The market got a seemingly positive economic report on Thursday. Durable Goods Orders (big ticket items) rose an unexpected 1.8% in May. Good news, except that durable-goods shipments declined 2.1%. So more goods were produced but apparently went into rising inventories. Rising inventories are not usually a good sign for the economy.

For the week: A mixed bag, not just in the U.S., but globally, with Europe down sharply and Asia mostly to the upside.

          Bank regulators closed four more banks Friday (two in Georgia, and one each in Minnesota and California). That brings the total to 44 so far, far short of the total by the time previous bank crises ended. We wonder if regulators have changed their estimates of several months ago they said at least 200 banks would fail before this crisis ends.

          Next week will be a four-day week in the U.S., with markets closed for Independence Day on Friday. The week has a quite heavy schedule of important potential market-moving economic reports coming out, including the first look at the employment picture in June, with the ADP Employment Report for June on Wednesday, and the Labor Department’s Monthly Jobs Report on Thursday. On the housing industry there will be Construction Spending and Pending Home Sales.

          The next weekly pattern is for the ‘monthly strength period’ to begin on Tuesday and to run through the following Monday,This is usually fueled by quarter-end ‘window-dressing’ by mutual funds and money-managers (buying what was up for the quarter so their quarter –end holdings statement will make it look like they were in them for the full quarter). This one of the tricks of the trade that make them appear  smarter than they really are.

          We are once again in the holding pattern of being 100% in CASH while we wait for a strong sign that the risk has dissipated and it is once again a predicable market.

Till next time

The MTA Staff