Global Stock Markets: We All Fall Down!
September 7th, 2008 | by mantrionline |Investors not only returned to a shortened trading week after the Labor Day holiday on Monday, but also to a bruising on stock markets, at least for those with long equity positions.
Concerns about the global economic outlook and continued financial duress spooked burses around the world, with a number of other factors also adding to investors’ nervousness. In particular, Pimco’s Bill Gross, the manager of the world’s largest bond fund, said the U.S. needed to step up and buy assets to avoid a “financial tsunami” (Bill is renowned for talking his book on occasion!). Dwight Anderson’s big Ospraie commodity hedge fund closed after suffering large losses, and Russia was selling foreign currency reserves to prop up the ruble after foreign capital fled the country following its invasion of Georgia.
Stock markets and commodities ended the first week of a traditionally bad September deeply in the red, but government bonds and the greenback benefited from the deleveraging and a flight to perceived safety.
An announcement by the U.S. Treasury Department regarding the bailing out and recapitalization of collapsing home mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) seems to be imminent. According to The Wall Street Journal, Congressman Barney Frank, chairman of the House Financial Services Committee, confirmed on Saturday that Treasury Secretary Henry Paulson was planning government intervention to back the troubled GSEs. The detail could be announced as early as today (Sunday), prior to the Asian markets reopening.
Next, is a tag cloud of the text of all the articles I have read during the past week. This is a way of visualizing word frequencies at a glance. As expected, words such as “bank,” “prices,” “inflation” and “growth” featured prominently in my reading matter.
I have mentioned previously that the mid-July stock market lows need to be sustained in order for the summer rally and the market’s base building to still be in effect. These levels – 10,963 for the Dow Jones Industrial Index and 1,215 for the S&P 500 Index – approached with unnerving speed last week.
Commenting on the current market weakness, Brett Steenbarger (TraderFeed) remarked as follows:
A number of sectors, such as consumer discretionary and even many of the financial shares, remain well above their July lows. It is not at all clear to me that this will be a fresh bear market leg down. I’m open to the idea that this may be an ultimately successful test of the July lows and part of a larger – and quite significant – bottoming process. Participation to the downside will tell the story.
From across the pond, David Fuller (Fullermoney) added:
… investors have little incentive to channel the large capital pools accumulating in money-market funds back into stock markets. Resistance near the August highs for share indices has checked the rallies. Moreover, many have broken beneath their August lows this week. We have also seen some new lows for the year, reaffirming overall downward trends. Unless stock markets can push back above their August highs, the bear will remain in charge for a while longer.
The last word goes to Richard Russell (Dow Theory Letters):
Yesterday’s [Thursday’s] stock market action, according to Lowry’s, was a classic 90% downside day. Normally, such days are followed by 2 to 7 days of rally (bounce), and then a continuation of the downtrend. 90% downside days often come in a series of one or more, and after each 90% downside day we look (hope for) a 90% up-day. And that’s where we are now.
Before highlighting some thought-provoking news items and quotes from market commentators, let’s briefly review the financial markets’ movements on the basis of economic statistics and a performance round-up.
Economy
According to the Survey of Business Confidence of the World conducted by Moody’s Economy.com:
Global business sentiment has been more or less consistent with a global economy that is near recession since the subprime financial shock hit over a year ago.
The survey did take on a slightly more upbeat tone at the end of August as pricing pressures abated a bit, sales strengthened somewhat and hiring firmed modestly. Businesses remain most dour in the U.S., Europe and Japan, and most upbeat in the rest of Asia.
In the U.S., the September Beige Book report from the 12 Federal Reserve districts indicated slow and weak conditions across nearly all districts. Price pressures for energy and commodities continued to be a factor during July and August across nearly all districts, although pass-through to wages appeared to be minimal, giving the Fed some breathing space in terms of monetary policy for now.
The most important economic data released in the U.S. during the past week concerned the employment situation. Non-farm payroll employment fell by 84,000 in August and the unemployment rate rose to 6.1% from 5.7% in July. Revisions to June and July job numbers tacked on another 58,000 lost jobs. In the first eight months of 2008, on average, 76,000 jobs have been lost each month. The decline in payrolls and the rise in the unemployment rate were both larger than expected by consensus forecasts, fueling concerns about the pace of consumer spending in the months ahead.
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