Daily Investment Interpretations

January 23, 2009

2009-1-23:  The U. S stock markets essentially marched in place today.   The  NASDAQ gained 11.8 points (0.81%), ending at 1,477. The Dow jettisoned 45.24 points (-0.56%) to close at 8,078. The S&P 500 rose 4.45 points (0.54%) to 832. Oil rebounded to $46.47 a barrel, and gold soared $37 to end at  $895.80 an ounce. The VIX was unchanged at 47.27.
    There were some upbeat articles, such as Mark Hulbert's Perspective on this bear market. He cites a study by Ned Davis Research that shows that the tech breakdown with the bursting of the dot.com bubble was more traumatic than the present downturn, with IT stocks falling 82.5%, compared to financial stocks which have, so far, declined 78.7%. Furthermore, IT stocks comprised "about 35% of the S&P 500 at its March 2000 peak, in contrast to the 22% weight that the financials sector represented at its peak in 2007". He concludes, "Trite as it may sound to say this, it is a helpful antidote to doomsday thinking." My concern about this viewpoint is that, as I remember the situation, Fed Chairman Greenspan eventually cut interest rates to 1%. There was talk at the time about "pushing on a string" if this didn't work. But it did work. The economy recovered using conventional monetary manipulations. The difference this time (it would seem to me) is that the Fed has fired its last conventional monetary bullet and has failed to stop the charging bear. Of course, it might be argued that the Fed's lowering of the interest rate to % hasn't had time yet to take hold. That could be, but I have the impression that no one thinks it will be sufficient this time to turn things around (not to mention their explanations regarding the gigantic debt bubble that's yet to be deflated). But of course, I'm sure that Mark Hulbert is well aware of anything I know and far more besides. It would be interesting to get his take on this overall picture.
    A look at the 10-year S&P 500 chart below is interesting. In 2002-2003, the market hit bottom three times over a nine-month interval, the last bottom being a successful retest (at 804) of its October 10, 2002, low of 769. By contrast, the S&P hit an intra-day low of 741 before it rebounded to close at 800. It closed today, two months later, at 832, with an intervening high of 944 on January 6, 2009.
    Obviously, we don't need to race to catch the upward wave if this is a new bull market.