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Thursday was a typical slow holiday trading day. There was a little trading momentum in the morning, but there were not enough buyers to keep it going, so the traders reversed and pushed the market back down. Relief over a decline in initial jobless claims got the rally going, but disappointment over lackluster holiday retail sales took the wind out of the rally’s sails.
There was a modest amount of selling into the rally.
The good news was that there was no sign of any significant ‘real’ selling.
Volume was extremely light (805 million shares). Breadth was modestly positive, with 1.15 gainers for each loser. There is no real significance to a modest decline on such light volume.
According to Thomson Financial I-Watch, institutional investors were net sellers of Cisco (CSCO), JDS Uniphase (JDSU), Sun (SUNW), and Motorola (MOT), but net buyers of Lucent (LU), Nortel (NT), EMC (EMC), Sprint PCS (PCS), and AT&T Wireless (AWE).
The Unemployment Insurance Weekly Claims report registered a sharp decline in initial claims (back under 400,000), a moderate decline in continuing claims (still well under the level of a year ago), a modest increase in the 4-week moving average of initial claims (modestly over 400,000), and a moderate decline in the 4-week moving average of continuing claims. This was a mostly positive report. There was a moderate decline in the actual, unadjusted initial claims which are well under the level of a year ago. Unfortunately there was a moderately sharp rise in the actual, unadjusted continuing claims, although well under the level of a year ago. The labor market is still limping along, and will continue to do so until top-line economic growth picks up to a healthier pace.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a moderately sharp decline in applications, with a moderately sharp decline in refinancing and a moderate decline in applications to purchase. This was a negative report, but only reversed part of the prior week’s gain. Although off the recent highs, applications are still at a high level.
Wal-Mart (WMT) lowered its December sales outlook from 3-5% to 2-3% for the five-week period ending January 3 over the comparable period a year ago. They said that demand accelerated over the past weekend and into Christmas Eve, with two of those days topping $1 billion in sales, but “the increase was too late and too little for us to reach our sales plan.” The company had been warning that sales were weak for the past few weeks. The strongest categories for the week included electronics, seasonal merchandise, jewelry, cosmetics and toys. Among the weakest categories were men’s and boys’ clothing and small appliances.
The latest ShopperTrak RT National Retail Sales Estimate for the period between Thanksgiving and Christmas showed an 11% decline from the sales level a year ago. This was a negative report. Part of the problem was that there were five fewer shopping days this year. The expectation is that there will be a modest gain over last year for the full November/December period.
After the close: AMG Data Services reports that for the 4-day week ended Tuesday, December 24, $1.2 billion flowed into equity funds, with most going to domestic growth and value funds. This was a positive report. $1.2 billion flowed into taxable bond funds. $19.5 million flowed out of municipal bond funds. $25.0 billion flowed out of money market funds. International debt funds and emerging market debt funds report their sixth consecutive week of inflows.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, rose by 3.57% on Thursday to 31.08, which is in the lower half of the high anxiety zone (30 to 35). There was moderate disappointment that the early rally petered out and ended as a loss. People are still relatively worried that what’s left of the October recovery could unravel further.
The high level of VIX remains a contrarian bullish indicator, but the market could decline further before rallying again.
The Nasdaq-100 After Hours Indicator had a positive tone for the Thursday evening session, closing up 0.7 points. People are basically just standing around waiting for something, anything to happen.
[UPDATED 12/12/02] The Fed funds futures market suggests that there will be no Fed rate changes through the May FOMC meeting.
[This is the info from Friday since my source gave no update today.]
Fed funds futures suggest a 12% chance of a quarter-point rate cut by the January FOMC meeting. In other words, futures indicate that the Fed will not cut rates through the January 28/29 FOMC meeting.
Fed funds futures suggest a 38% chance of a quarter-point rate cut by the March FOMC meeting. In other words, futures indicate that the Fed will not cut rates through the March 18 FOMC meeting.
Fed funds futures suggest a 7% chance of a quarter-point rate cut by the May FOMC meeting. In other words, futures indicate that the Fed will not cut rates through the May 6 FOMC meeting.
The dollar fell moderately against the yen and fell moderately sharply against the euro. Markets are relatively thin during the holidays, so speculators can have a field day.
It makes little fundamental sense to be selling dollars, other than simply because a lot of other people are selling them. It is the preferred currency of individuals around the world. In fact, even individual Iraqi citizens are hoarding dollars.
[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.
[UPDATED 7/23/02] 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 rose moderately sharply, and is now moderately above the psychological $30 level. Markets are relatively thin during the holidays, so speculators can have a field day. There is plenty of oil sloshing around the world, so any Venezuelan shortfall can easily be met. Individual refineries may cutback rather than pay a higher price to buy crude on the open market, but customers can simply buy from other refiners who are raising production to meet demand. The U.S. Department of Energy says that it still sees no need to release any oil from the Strategic Petroleum Reserve since there is no oil supply emergency.
[UPDATED 7/23/02] 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 rose moderately.
[UPDATED 7/23/02] In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
[UPDATED 7/6/02] The relative calm continues.
There is ongoing anxiety over North Korea, but nothing that really needs to be worried about by investors or the financial markets.
[UPDATED 7/23/02] Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
[UPDATED 10/14/02] The eerie calm continues. There may continue to be attacks or alleged attacks abroad, but the U.S. “homeland” may be relatively immune, at least for now.
[UPDATED 7/23/02] Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
The inspections continue.
Baghdad reiterated its promise to turn over a list of the scientists who had worked on its weapons programs within “two or three days.”
[UPDATED 12/12/02] My assessment remains that there is virtually no chance of an all-out military conflict with Iraq this year and only a 20% chance next year. If there is to be an all-out war with Iraq, it would happen in the winter of 2004, not this winter.
[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.
[UPDATED 7/23/02] 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.
…
No activity.
Today will probably be yet another slow holiday trading day.
It’s a Friday, so traders will tend to close out positions in advance of the weekend.
There are only a few economic reports due today, including new home sales.
There are only three days left in the month, quarter, and year, so a little window dressing is possible. There might be some lingering tax-loss selling, but most of that is probably done.
My forecast for today is that Nasdaq will close in the range -30 to +40. Nasdaq came in at -5 on Thursday, well below the midpoint of my range of -30 to +40. 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 12/27/02] The October recovery is 54 days old, but the correction off the peak is now 19 days old. Nasdaq is looking quite ragged but still retains all of the October gains even though most of the November gains are gone. It may or may not completely unravel. I’ll give the market five more days (I add a day if Nasdaq rises at least 1% and subtract a day if it declines at least 1%) before concluding whether we’re truly back to a bear market or just in a trading range (or, heaven forbid, starting on a new bull market). Now that we had an initial bounce last Friday and at least two days without seeing a new low, we’re now looking for a 1.5% bounce on any day thru Tuesday on volume higher than the previous day with no intervening test of the low on the day of the initial bounce. Such a “confirmed bounce” would signal the start of a new up-leg of the October recovery.
[UPDATED 9/25/02] Technically, we are back in a bear market (as of Monday, 9/23) 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 12/26/02] Forecast for Nasdaq in 2003: 2800 at end of year, 1800 at mid-year, 1600 at end of first quarter. This presumes that the majority of tech companies return to solid revenue and earnings growth. Once tech starts moving up, there will be a truly mind-boggling number of short positions to cover. The majority of mutual funds that want to stay in business and attract new funds will have no choice but to head back to techland.
[UPDATED 12/18/02] There seems to be some amount of consensus that the economy will continue to grow at a sluggish pace in the first half of 2003, but then accelerate in the second half of the year. Of course, that’s what people said about 2001 and 2002. Part of this new consensus is an expectation of war with Iraq in Q1, possibly spilling into Q2, but then the economy would pick up after Iraq is out of the way. I don’t concur with the consensus on Iraq, but I am fully prepared to assume growth in Q1 and Q2 may be no more than modest. On top of this economic expectation, we layer an expectation that the stock market is typically expected to react six months in advance of economic changes.
[UPDATED 11/30/02] I rate the probability of serious deflation in the U.S. over the coming year at 1 in 1,000 (0.1%). It’s easy to make a hypothetical case for deflation – in any economy – by simplify hypothesizing that a whole bunch of factors all turn south and policymakers do all the wrong things. Fortunately, that’s not likely to happen in the U.S. Sure, there are plenty of sectors where prices have come down either to excess capacity or suppressed demand, but capacity has a way of adjusting and suppressed (or pent-up) demand eventually has a way of reasserting itself. Policymakers are well aware of previous episodes of deflation, so there is little reason to believe that they will make “all the wrong moves” needed to force the economy into a deflationary depression. In truth, we are actually looking at a higher risk of inflation next year since prices of intermediate goods have risen at ever higher rates for each of the five past months. In short, don’t make the mistake of assuming that hypothetical, theoretical, potential disasters are the likely scenario.
[UPDATED 11/9/02] The ECRI Weekly Leading Index (WLI) tells us that the economy is starting to pick up a little. Not enough to make people happy, but enough to offer encouragement that neither a double-dip recession nor deflation are in our cards.
[UPDATED 12/16/02] The economy is looking even more mixed than before. Although there are plenty of signs of weakness, there are increasingly tantalizing tidbits of improvement. The bottom line is that the economy is hanging in there and even growing a little, even if it is not up to its full potential.
[UPDATED 11/7/02] I’ve decreased my estimate of the probability of a double-dip recession to 10% (from 20%) due to hefty half-point Fed rate cut. 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 12/9/02] I don’t yet have a forecast for Q4 GDP. The accounting is so inscrutable as to defy any rational forecast. People expect economic activity to slow dramatically from the pace of Q3, so real GDP growth in the range of -1.5% to 3.5% (midpoint of 1.0%) is possible. A survey of economists by The Economist shows an expectation for real GDP growth in 2002 of 2.4% (low of 2.3 to 2.6), which implies Q4 GDP growth of -0.7% (low of -1.1 to 0.1). The same survey forecast real GDP growth of 2.6% in 2003 (low of 2.0 to 3.3). There was no hint or suggestion of deflation in these survey results. In fact, The Economist poll for consumer prices forecast a gain of 2.1% in 2003.
[UPDATED 12/4/02] Even Stephen Roach, the gloom-and-doom economist from Morgan Stanley, is forecasting real Q4 GDP growth of 1% (as of 12/2/02). He had been adamant that the economy would have a double-dip recession, but now admits that we have escaped two “double-dip alerts” this year. He does still expect that there will be more double-dip scares in the months and quarters ahead. He is a very smart former-Fed economist and even though I don’t share his gloominess, at least he does offer a solid lower bound for the likely performance of the economy.
[UPDATED 11/27/02] A panel of professional forecasters of the National Association for Business Economics (NABE) estimates that real Q4 GDP should grow at a rate of 1.4%. Q1 GDP should grow at a 2.5% rate. Full year 2003 GDP should grow at a rate approaching 3%. The survey was taken from November 9th to 14th.
[UPDATED 12/21/02] The Blue Chip economic forecasters group has estimated real Q4 GDP growth at 1.4%.
[UPDATED 12/18/02] The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is still uncertain whether the recession truly ended of whether the end was merely temporary with a second dip to follow. In their words (as of December 7), “The behavior of the economy this year indicates that the decline in activity that began last year may have come to an end. But recent data show that additional time is needed to be confident about the interpretation of the movements of the economy last year and this year.”
[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 12/21/02] 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 Q4 forecasts, and virtually nobody is beating the drum for a great Q4 or Q1. And nobody has any real sense of visibility into Q2. 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: December 26, 2002 10:48:37 PM -0500
Copyright © 2002 John W. Krupansky d/b/a Base Technology