Pride, Pomp, and Circumstance of Glorious Market War

It was really a low-key session considering all the moving parts from robust corporate earnings, financial regulation on the horizon, the plunging dollar, and constant state of flux that has become the U.S. consumer. It's a lot to soak in for anyone, but really difficult for investors that may have missed this rally. This is where pride becomes an insidious vermin eating away at decision making, once again paralyzing so many investors that have been voyeurs throughout this magic ride. Unfortunately, for them, the lack of pomp at once again crossing Dow 10,000 may abate their decision to continue to "sit this dance out." In the meantime, the stock market is always in a state of war, sellers think they know things buyers don't and vice versa and along the way, it's not good enough to have a decision but they must also impose their will.

This is the glorious war that is the stock market, where rules from the Marquis De Queensberry and Sun Tzu simply don't apply. The interesting thing is that the smoke from the carnage keeps many would-be players at bay, especially when the shorts have the upper hand. Right now, however, the bulls have the edge and the smoke should have come from the thundering herd of individual investors looking to get in the game. They simply haven't. According to Morningstar, individual investors have only put a net $14.5 billion into equity mutual funds this year while loading up on bond funds to the tune of $254.6 billion. According to the Investment Company Institute, American investors were dumping stock funds as fast as possible. Of course, we know now they should have been buying with the same resolve. Even though there have been net positive inflows since March the amounts are small indeed.

In addition to strong corporate earnings the market was also buoyed by the minutes from the most recent FOMC gathering, where members actually considered expanding its $1.25 mortgage-back securities purchasing plan. Reading between the lines, interest rates aren't coming down anytime soon no matter how hawkish some of the players have become.

Economic Data

Initial Jobless Claims

The claims data was certainly a breath of fresh air (assuming one has become numb to +500K prints) this morning. For the week-ended October 10, claims totaled 514,000 (consensus: 520,000) down 10,000 from the prior week. The major standout was continuing claims, which fell by a shade over 68,000. With no material upward revisions to the prior week's data set, this latest release is supportive of a gradually improving labor market.

Consumer Price Index

Nothing eye-grabbing in the September CPI report this morning and maybe that's a good thing. Both the general index and the core index (excludes food and energy) increased by 0.2% month over month, whereas the Street was looking for a 0.1% gain for both. Most major classes of goods increased during the month except for food and beverage, which fell by 0.1%. Meanwhile, energy and transportation costs rose 0.6% and 0.8%, respectively.

This morning, we are seeing something that I have been bracing for...selling on good news. One of the oldest sayings on the Street is buy on the rumor sell on the news, and we are seeing a version of that this morning. Great earnings results from Goldman Sachs (GS), and much better than expected results from Citigroup (C), were met with selling of the respective stocks. I understand the game, but it can make an already difficult endeavor that much harder. On the other hand, what the hell was going on with Harley Davidson (HOG), which has rallied eight days in a row into this morning's earnings release. Yesterday, Wells Fargo (WFC) placed a buy rating on the stock that lifted the shares almost 7.0%. The company missed the Street's EPS estimates in each of the last four quarters, and earnings estimates have been driting lower.

Go figure.

Comments

[untrusting ...:]

The most interesting comment we have seen recently was an article disucssing the possibility of buying by value investors. The main idea was that stock market prices are so far above where any value investors would be willing to buy stocks (and with the thin volumes trading now) that prices will have to fall dramatically to entice any value investors interest in purchasing equities. Or likewise to entice any of the 20x money going into bonds.

Oct 15 06:17 PM