Daily Investment Interpretations

May 17, 2010

2010-5-17:  After falling around 2%, the market indices turned around and finished slightly positive. The markets have been retesting last week's lows. This is a classic pattern for a market breakdown, and we could have seen the bottom for this pullback. The NASDAQ Composite ended the day up 7.38 points (0.38%) to 2,354.23, the Dow inched up 5.67 points (0.05%) to 10,625.83, and the S&P 500 minced up 1.26 points (0.11%) to end at 1,136.94. Oil rose to $73.61 a barrel, while Gold retreated to $1,222. The VIX fell 0.4 to 30.84.  
    The news is wonderfully grim and scary... which is just what's needed to drive the markets down. (You have to realize that financial news isn't like other news. There are enormous amounts of money riding on which way the markets move. It would be ingenuous, I should think, to suppose that Rupert Murdoch bought Marketwatch, the Wall Street Journal, and other key financial news organs just for their advertising revenue.) In any case, the news jibes with the current dip.
    Debt vigilantes put Europe on notice
    Five investment ideas to play the next sovereign debt crisis  
    Financial maelstrom has cast doubt on even U.S. Treasurys  
    Be careful, Europe  
    Sovereign funds' 2009  
    Second debt storm brewing  
    New stage for debt crisis  
    Why Europe may kill the U.S. recovery  
    2010's next stock crash: 1987 all over again This article warns that current  price-to-earnings ratios, at 22 on the S&P 500, and S7P 500 dividend yields at 1.8%, are dangerously high. Yes, but... P/E ratios are high during and coming out of a recession. Stock prices are based upon next year's anticipated earnings, which, coming out of a major recession, tend to rebound rapidly. I don't have those numbers handy so I can't be sure about what I'm saying here, but I'd be slow to uncritically accept the article's conclusions. Dividends are a more compelling question, but considering what we've been through, rising dividends might also be in the cards.

2010-5-17:  Stock market futures are down slightly tonight..