Daily Investment Interpretations

March 4, 2011

2011-3-4 (Friday Night):   The stock market continued its decline until half an hour before the end of the trading day. Then it rallied partially, though not enough to finish in the black. The NASDAQ Composite gave back 14.97 points (-0.05%) to 2,784.67. The Dow redacted 88.32 points (-0,72%) to 12,169.88, while the S&P 500 subtracted 9.52 points (-0.74%) to close at: 1,3321.15. Oil ended the day at $104.42 a barrel, while Gold slid to $1,433. The VIX tacked on 0.46 points settle at 19.06
    Topstock Portfolios explains that today's mal de mer was strictly a consequence of oil prices: Friday's Action - All About Crude. All the other news was good: Factory Orders Above Expectations in January, Jobs Report Shows Improvement; Unemployment Rate Falls to 8.9%, Nation's Retailers Report Good Results in February. By Monday, oil will probably have stepped across the $105-a-barrel threshold. (It's at $104.91 tonight.): Cardillo: Oil prices will hit $115 a barrel, soon Since it's probably being driven more by speculation than by tangible supply-and-demand, it's hard to know how high it will rise before it crashes back to its Plimsoll Line. In the meantime, so far at least, market indices have remained within a trading range.
    Personally, I suspect that there will be further stock market shocks emanating from the Middle East and North Africa before the dust settles. Long-term, I wouldn't expect this to affect to global recovery, but short-term, with traders surfing the market's waves, we may see even greater market swings than have manifested themselves so far. Foreign military intervention in Libya would, I should think, send the world's stock markets into a transient tailspin. 
    A lot is being said about the fact that this bull market is approaching its second birthday (next Wednesday), and comparing it to previous cyclical bull markets.  But I try to remind myself that this has not been a typical bear market. It's the first time since at least The Depression that the Federal Reserve has been unable to rekindle the economy by simply adjusting interest rates... the first time that the Fed has lost control. Furthermore, this recovery has been long and slow, nip and tuck. As the chart below shows, this has seen the deepest stock market decline since the Depression. We're at about the same point along our recessionary timeline as the 1973-74 bear market: the Dow is still about 15% below its 2007 peak, so we have some catching-up to do just to get back where we were in 2007. And earnings have been chugging upward in a way that, maybe, wasn't present in the 1973-74 scenario (perhaps because of global markets and overseas profits). Unlike the 1973-74 era, we're experiencing low inflation.
    Mark Hulbert points out that, normally, well before the second anniversary of the bear market bottom, stock market leadership has shifted from secodary stocks to blue chip stocks, but that right now, blue chips still remain relatively undervalued: Hulbert: Look for a change in stock-market leadership   
    A couple of other articles of potential interest are: What's your breaking point as gas prices rise? and With oil, itís all about supply: Howard Gold.
    Mark Hulbert has also written: Investor reaction times shorter than ever, while Tom Kilgore writes: Prepare for transports weakness to spread.  Myra Saefong comments on $100 oil: Here to stay or soon to go? (This article notes that upheavals in Algeria and/or Iran could send oil prices sharply higher, as could unrest in Saudi Arabia.)