Post by Ol' Red on Jan 30, 2009 15:20:24 GMT -5
Over the past two days the bears have wrested back control of the market from the bulls, bringing the major averages right back to where they started on Monday. This action is particularly noteworthy given the euphoria on Wednesday that greeted the news of the planned "bad bank" plan, which led to a 12% surge in the Financials (XLF) that day and lifted the S&P 500 back above its 50-day moving average. Yet while the rally had a specific piece of news that served as a catalyst, the pullback has not. Given this curious action, we suspect that the following factors could be weighing on the market right now:
1) The "bad bank" plan, which was perhaps greeted with an excess of enthusiasm on Wednesday, has since come under some withering criticism from some influential analysts, who have been pointing out that this plan will not be a "silver bullet" that solves the Financials' problems and jumpstarts lending, but rather another expensive stabilization program. (Note that just this afternoon one news service reported that the bad bank plan was in fact "put on hold".)
2) Recall that in the weeks leading up to Obama's inauguration, there was a lot of hope that the massive new stimulus plan that Congress was planning would provide a significant boost to the economy in 2009. Yet over the past week, as the details of the House version were released, it has become increasingly apparent that a very large portion of the planned spending would not have much of a stimulative impact this year, that infrastructure spending would constitute just a tiny fraction of the total, and that a good deal of it is outright pork. Moreover, the "buy US" language in the House version has prompted angry reactions from our trading partners, raising fears of a protectionist backlash. The Senate still has to pass its version, and the final bill will probably look very different.
3) At least a portion of the sell-off yesterday could be attributed to investors stepping to the sidelines ahead of this morning's Q4 GDP report, which was expected to show a 5.5% contraction. The number in fact came in better than expected at -3.8%, but it turns out that an increase in inventories was the main contributor behind the better-than-expected reading, and this inventory boost is not likely to continue into Q1. Moreover, to state the obvious, a 3.8% decline in U.S. GDP is a terrible number irrespective of what the estimate was, and does not bode well for the first half of the year.
Taken together, these factors aren't exactly new but they did come into focus this week, and may have dampened some of the recent enthusiasm in the market.
FWIW - I am trading the same range I have been for the last 3 months.
HAVE A GOOD WEEKEND --
ENJOY THE SUPER BOWL
Red
1) The "bad bank" plan, which was perhaps greeted with an excess of enthusiasm on Wednesday, has since come under some withering criticism from some influential analysts, who have been pointing out that this plan will not be a "silver bullet" that solves the Financials' problems and jumpstarts lending, but rather another expensive stabilization program. (Note that just this afternoon one news service reported that the bad bank plan was in fact "put on hold".)
2) Recall that in the weeks leading up to Obama's inauguration, there was a lot of hope that the massive new stimulus plan that Congress was planning would provide a significant boost to the economy in 2009. Yet over the past week, as the details of the House version were released, it has become increasingly apparent that a very large portion of the planned spending would not have much of a stimulative impact this year, that infrastructure spending would constitute just a tiny fraction of the total, and that a good deal of it is outright pork. Moreover, the "buy US" language in the House version has prompted angry reactions from our trading partners, raising fears of a protectionist backlash. The Senate still has to pass its version, and the final bill will probably look very different.
3) At least a portion of the sell-off yesterday could be attributed to investors stepping to the sidelines ahead of this morning's Q4 GDP report, which was expected to show a 5.5% contraction. The number in fact came in better than expected at -3.8%, but it turns out that an increase in inventories was the main contributor behind the better-than-expected reading, and this inventory boost is not likely to continue into Q1. Moreover, to state the obvious, a 3.8% decline in U.S. GDP is a terrible number irrespective of what the estimate was, and does not bode well for the first half of the year.
Taken together, these factors aren't exactly new but they did come into focus this week, and may have dampened some of the recent enthusiasm in the market.
FWIW - I am trading the same range I have been for the last 3 months.
HAVE A GOOD WEEKEND --
ENJOY THE SUPER BOWL
Red