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There was nothing new for the market on Thursday. Only some more mixed economic reports and some more mediocre corporate reports.
Volume was light (1.63 billion shares). Breadth was poor, with 1.4 gainers for each loser.
The Unemployment Insurance Weekly Claims report registered a moderate rise in initial claims and a moderate rise in continuing claims, as well moderate rises in the 4-week moving averages of both initial and continuing claims. This was a moderately negative report. On the plus side, the unadjusted, actual number of initial claims fell modestly, but maybe only because the prior week was revised upwards. The best news was that the unadjusted, actual continuing claims fell moderately. In fact, unadjusted continuing claims have fallen in 4 of the past 5 weeks.
The ISM Non-manufacturing Index for September rose moderately after declining for three consecutive months. This was a positive report. New orders, the backlog of unfilled orders, and exports are expanding. Imports are contracting. Unfortunately, employment is contracting. Note that most businesses in America are too small to show up on the ISM surveys, so these surveys don’t necessarily reflect the overall economy.
The Factory Orders report for August was unchanged. This was a somewhat positive report since people had expected a dramatic decline. Shipments were down moderately, but unfilled orders were up moderately. Orders for nondurable goods were up by more than orders for durable goods were down. Unfortunately, orders for computers and communications equipment were down sharply (but after being up more sharply in July).
After the close: AMG Data Services reports that for the week ended Wednesday, October 2, $2.3 billion flowed into equity funds. Most of that flowed into non-domestic funds, but that is still an improvement over recent weeks. This was a modestly positive report. Real estate funds reported their second consecutive week of outflows. $1.1 billion flowed into taxable bond funds. $402 million flowed into municipal bond funds. $17.4 billion flowed out of money market funds, but $3.6 billion flowed into tax-exempt money market funds.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, rose by 3.69% on Thursday to 44.96, which is near the top of the extremely high anxiety zone (40 to 45), almost to the near-panic zone. VIX did spike up to 45.74 (in the near-panic zone) twice in the early afternoon, but settled down a little as the afternoon wore on. VIX is frequently a contrarian bullish signal, so there could be a nice bounce any day now, but there could be a sharp sell-off before the bounce as well.
The Nasdaq-100 After Hours Indicator had a negative tone for the Thursday evening session, closing down 0.99 points. A warning from EMC (EMC) was a disappointment (but not a very big surprise). They expect be about 11% light on revenue.
Fed funds futures suggest a 100% (up from 98%) chance of a quarter-point rate cut in November. In other words, futures indicate that the Fed will cut rates at the November 6 FOMC meeting.
December is still too far away for futures to reliably predict the actual fed funds rate (according to studies that the Fed itself has done.)
[UPDATED 9/25/02] I forecast that the Fed will hold interest rates steady through the Fall election (November 5) and likely through the November 6 FOMC meeting as well, unless some dramatic, new, unforeseen crisis erupts.
The dollar fell modestly against the yen and euro.
[UPDATED 7/23/02] There are still no signs of any economic fundamentals that would make either Europe or Japan dramatically more attractive than the U.S. for long-term investment. Rather, the relative weakening of the dollar has been primarily driven by speculative currency trading and sentiment (such as the accounting scandals) and that sentiment will most likely reverse over the coming months as the forces depressing sentiment dissipate.
In any case, the dollar is still quite sound and no true investor should lose any sleep worrying about potential negative implications from a weaker dollar. And, a weaker dollar will boost U.S. exports.
The price of oil fell sharply, and is now back below the psychological $30 level. Gulf oil facilities survived Hurricane Lili without any real damage. There was also talk of the U.S. “temporarily” releasing a moderate quantity of crude oil from the Strategic Petroleum Reserve simply to make up for the Lili-induced shortfall. Such a temporary release means that the recipients will return the same amount of oil to the reserve at a later date. In theory, the SPR holds enough oil to meet the entire needs of the U.S. for around 90 days.
I have heard that the “war premium” is around $5.
In any case, the price of oil price continues to be well-behaved and no true investor should lose any sleep worrying about it.
The price of gold fell modestly.
In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
The relative calm continues.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The eerie calm continues.
Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
Congress is inching towards passing a resolution authorizing military force against Iraq. Meanwhile, the U.N. does not seem to be making much progress. One sticking point is that the U.S. proposal requires full disclosure of all WMD programs before inspectors can even start their inspections. That’s superficially a very sensible proposition, but not very practical or diplomatically very acceptable. There is also talk that the inspectors’ first visit to Iraq will likely be delayed beyond October 15, suggesting that there won’t be a consensus on a UN resolution by the 15th.
I attended an all-day conference at the American Enterprise Institute entitled “The Day After: Planning for a Post-Saddam Iraq”. Although panelists did touch briefly on topics related to removing Saddam Hussein, the focus was what happens after he is gone. Panelists covered the whole range of military, social, economic, legal, and foreign policy issues related to rebuilding Iraq as a modern democracy. Panelists were mostly academic experts, former diplomats, and businessmen, but all with expertise relevant to the Iraqi situation. There was no conclusion per se, other than that despite a wide range of risks, it is all doable and the benefits will be dramatic. Two days before the conference the White House informed the conference organizers that they wouldn’t feel comfortable having a senior U.S. official attend the conference. They announced that fact at the conference (with apparent glee) and then in the afternoon were able to report that the White had changed their minds and agreed to send a high-level U.S. official to a future session. One highlight was the attendance and presentation by Ahmed Chalabi who is the president of the Iraqi National Conference (INC) which is the main Iraqi opposition organization. There is a good chance that he may be the guy who gets put in charge once Saddam Hussein is removed, but there are others, including formal military officers, who are also jockeying to lead Iraq. The State Department is struggling to figure out how to deal with the various opposition groups. Ultimately, the Iraqi people will get to elect their own leaders, but the transition could be even messier than it has been in Afghanistan. On the other hand, a lot more thought has been put into the Iraq problem, so there is a good chance that we can hit the ground running and have most of the bases covered within a few weeks of Saddam Hussein’s “departure”.
It is still my assessment that there will be not be any all-out military conflict with Iraq this year and only a 20% chance next year.
[UPDATED 9/16/02] The bottom line is that investor concern over the sluggish economic recovery and weakness in corporate revenue and earnings growth still weigh more heavily on the market than all the other non-economic factors. Traders merely use Iraq, et al as excuses for any market weakness.
Click here for our more extensive commentary on The Iraq Problem.
Click here for our more extensive commentary on Technology.
No activity.
[UPDATED 8/5/02] Check out our book list.
Absolutely nothing more is needed at this point other than to simply let the current market-driven corrective processes play themselves out.
Click here for our more extensive commentary on financial reform.
Click here for our more extensive commentary on The Telecom Problem.
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No activity.
The monthly employment report will be the big economic news today. People don’t expect very much since the unemployment initial claims have been higher in September, but that does not tell us about job creation. Although we could see a dip in employment, there is a good chance that we will see another modest gain. The economy is in the midst of a restructuring, so a lot of “old” (high-paying) jobs are being shed, even as quite a number of new (lower-paying) jobs are created. How the two net out is rather volatile, but it is a good thing that the economy is becoming more balanced.
It’s a Friday, so traders will tend to close out their positions ahead of the weekend.
The market is once again in a short-term technically heavily oversold condition, so is due for a sharp bounce any day now.
My forecast for today is that Nasdaq will close in the range -20 to +80. Nasdaq came in at -22 on Thursday, moderately above the lower end of my range of -30 to +80. The market continues to be so crazy that it could go either way, but I still believe there is a longer-term upwards bias even if the near-term bias is all over the map.
[UPDATED 10/1/02] The market performance in recent days suggests that maybe we aren’t back in a bear market (yet) and we could still be in a trading-range market. But if we can’t make much progress over the next several days, then we could easily fall back into bear market mode.
[UPDATED 9/25/02] Technically, we are back in a bear market (as of Monday) since we have broken below the July 24 low. But whether we continue downwards depends on whether the recent declines were driven by ‘real’ selling or simply due to short-selling. Short-sellers do eventually have to buy their borrowed shares back. The lofty level of the market Volatility Index (VIX) suggests that professional investors are bracing for the worst. That sounds bad, but frequently, those precautions are a harbinger of a turn in the market. The only question is whether the turn occurs within the next few days, a few weeks or a few months.
[UPDATED 8/22/02] The incredible level of disbelief in the current rally strongly suggests that a contrarian bullish view may be appropriate. It’s the exact flip-side of where we were in April and May of 2000 when people refused to belief that the bull market was over and that a bear market had begun.
[UPDATED 6/24/02] Regardless of how crazy the market behaves, the economic recovery is well underway. Market participants may not yet be ready to acknowledge the recovery, but it is inevitable, even if the timing is uncertain. There are more than enough differences in the current market cycle than any in recent memory, but inevitably the market will rise as people anticipate earnings growth down the road. Investing for the long term is still an excellent strategy even if it feels painful in the near term.
[UPDATED 6/24/02] The market will rally when the selling peters out. The market religiously obeys the law of supply and demand, but many buyers have a habit of waiting until the sellers exhaust themselves.
[UPDATED 9/14/02] I’ve decreased my estimate of the probability of a double-dip recession to 20% (from 25%) due to higher retail sales in August. I still think a double-dip is unlikely, but I do want to quantify my beliefs as well as risks.
[UPDATED 6/24/02] There is absolutely no question that the economic recovery in the U.S. is going at a somewhat slower pace than had been expected by this point in time, but the recovery is well along nonetheless. We are still winding our way through an extended turning point, but virtually every day brings news that we are making incremental progress, even as there are still plenty of negative data points as well. Impatient observers fail to recognize that turning points are bumpy affairs and that negative data points do not necessarily mean that something has gone wrong.
[UPDATED 6/24/02] Spending on technology has picked up only modestly, at best. And the telecom sector continues to decline. That said, the recovery is in fact well along, with the manufacturing sector leading the way. Manufacturers have plenty of excess capacity so that they can increase production without spending too much and without needing to hire many workers, yet.
[UPDATED 6/24/02] Even as unemployment continues to rise modestly, actual employment has already begun to rise, although at a very modest pace. The average paycheck has also been rising, and at a rate faster than inflation. That combination of more people working with larger paychecks means that overall national income is rising, which is a very good thing and will continue to fuel consumer spending.
[UPDATED 6/24/02] Companies are reluctant to dramatically increase their spending on technology until they become more comfortable that ‘final demand’ is increasing at a dependable pace. Demand is increasing, but at a slow enough pace that companies are proceeding with great caution. But as each day goes by, an additional increment of that caution evaporates. It may be as painful as watching grass grow or watching paint dry, but investors can be sure that their patience will be rewarded. Sure, it will take some time to get back to ‘normal’, but that result is inevitable even if the timing is uncertain.
[UPDATED 9/10/02] I still don’t have a forecast for Q3 GDP. The accounting is so inscrutable as to defy any rational forecast. At this point it does feel like Q3 is moderately worse than Q2, but the crazy accounting could take it either way. A Reuters poll of economists places Q3 GDP growth around 3%.
[UPDATED 6/24/02] Although the end of the recession has not been officially ‘called’ yet (by the National Bureau of Economic Research), March is the most likely candidate for the ending month of the recession since that was the last month that showed declining employment. Industrial production’s last decline was in December.
[UPDATED 8/14/02] We are still in the turning point where the view in front of your nose is mixed and confusing. Recent economic reports have been weak or mixed, so we probably need another month of data to be able to see where we are going. For me personally, it’s a no-brainer that we very close to the final edge of the turning point, but so many people have lost confidence that they need a truly monumental level of evidence to believe again. But that’s always the way it is with turning points: it’s darkest before the dawn.
[UPDATED 8/24/02] I’ve reset the Tech Stock ‘Safe’ Signal back to 0.00 since it has the last change is over six weeks old. There needs to be a sense of ‘freshness’ to the outlook for tech business that simply isn’t there right now.
[UPDATED 8/24/02] Our ‘safe’ signal requires at least 20% (1 out of 5, or 10 out of 50) of the top 50 tech companies to signal acceleration. Expect one or two quarters to elapse from the time of the first indications of an upturn and the return of solid growth. The theory is that the stock market should begin a sustainable rally four to six months in advance of the return of strong growth. Many companies are still trimming Q3 forecasts, and virtually nobody is beating the drum for a great Q4. A lot of people are saying that even Q1 of 2003 will be sluggish. That said, if you want to get the early stock market gains, you'll have to jump the gun and get in before our signal triggers. But if you do, you have to be prepared for some significant volatility and possibly some big losses. You have to decide for yourself whether you want safety in the short run or higher potential returns in the long run.
[UPDATED 9/14/02] For our complete list of resources, click here.
[NEW 5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: October 03, 2002 11:47:48 PM -0400
Copyright © 2002 John W. Krupansky d/b/a Base Technology