Many Investors Seem To Think the Worst Is Over 36 comments
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This week the markets ended on a positive note after generally positive earnings data from major companies like Intel (INTC), JP Morgan (JPM), Caterpillar (CAT), Google (GOOG) and Coca Cola (KO). The Dow rose 4.3% for the week and is down around 3.1% for the year; the S&P 500 is up 4.3% for the week and down around 5.3% for the year, and the Nasdaq is up 4.9% for the week but still off 9.4% for the year.
Surprisingly, financials outperformed the overall market for the week. Citigroup (C), AIG (AIG) and JP Morgan (JPM) were up around 10% this week. Even more surprisingly, this was due in large part to those terrible numbers from Citi which announced $16 billion in writedowns, $5.1 billion in losses and around 9,000 job cuts. With such huge writedowns and the bank trying to “come clean” on its losses, investors hope that the worst may soon be over. On Thursday, after Merrill Lynch (MER) announced $6.5 billion in writedowns and that it would axe around 3,000 employees, investors showed the same optimism and the stock rose an astonishing 7%.
All of this despite a worsening outlook with Citi expecting a 20% drop in home prices, of which 9% has already occurred, and Citi’s CFO Mr. Crittenden saying that “if historical trends were to repeat, there is a potential for higher loss in our cards portfolio into 2009.” What these results show is that investors want transparency, but are these banks transparent enough among themselves that CEOs have a clear picture of where all the assets lie and what writedowns might be forthcoming?
Apart from financials, tech stocks also got a boost from Google’s strong earnings, which grew 30% to $1.31 billion or $4.84 a share. This was far more than the $4.52 that analysts expected. The stock shot above $500 for the first time in over a month but is still far below its high above $740 in November last year. Price targets now are far more modest than the $900 that was predicted back then, although analysts are already giving targets in the mid $600s.
On a sidenote, these improved earnings from Google may give Yahoo (YHOO) more leverage when negotiating with Microsoft (MSFT) or other suitors of a proposed takeover as it shows that internet advertising is still healthy and growing strong. Of course the real clincher will be when Yahoo reports earnings this coming Tuesday.
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Moreover in my state we have whole neighborhoods empty where people just got up and left. I was at a big name chain restaurant last night. Previously there was standing room only waiting for dinner, last night there were open tables. I dont need CNBC to tell me the American consumer is slowing, just go out there.
And for the countys that their econmies are on fire.... With their dollars increasing in value it makes them all the more susceptible to slowdowns and bubbles in their economies too. Rough seas ahead I am afraid.....
Watch the 20 year chart on the SPX, when the 50 and 200 day simple moving averages cross and we are on the upside, then maybe jump back in, otherwise for a few positions I have I am staying short in inverse ETF's.
Seriously, when have stock prices NOT risen BEFORE unemployment/job losses improved? (BTW, it shouln't be so, but where I live in the south, restaurants are still full; though I agree the consumer is pulling back with respect to purchases of clothing, appliances, cars, etc.). Possibly you live in Michigan?...where the dumping ed of the elephant resides?
Inverse ETF's were a great idea a couple months ago, but you may get burned badly if you wait for those 50 and 200 SMAs to cross before you get out of those; you might at least consider going neutral on the market at this point.
I'm not saying the recession is almost over (if we are in fact going to have 2 qtrs of negative growth in GDP, which is questionable, though it certainly feels like a recession to many); only that our overall economy is not so bad as you suggest.
Also I've listened to many so called Advisors in the past and it seems they pick stocks that are already up and when a stock goes down they then put a sell on the stock. I can do that.
Some interesting earnings reports come out this week starting with Bof A the 1st thing monday morn ...
Here we go ... strap in if you have to
On the market, I wish I could be bold enough to claim to know the answers, but I do know that we are headed up eventually.
Me thinks so or there would have been a huge cascade effect on the financials. But you know, if that would have been allowed to happen we would have known by now exactly what these losses are at these banks. Some would not have been standing without that discount window opening. But more likely we would have had a major crash.
I am firmly convinced that the market will be called in the bond market in the near future and I dont like some of the charts there. The bulls may punch through 1400 on the SPX, but can they maintain it? Major chart resistance and major fundamental problems are ahead for them.
CPI is more of a globalized and lagging factor.
Sad to watch someone try to justify a losing position.
Sorry Joyce- and all the other weekend economists that come here- the worst is that you are missing out - but we will do fine without you
IT economy is real and will help specific sectors become far more efficient which will help, but without a major government program of energy independence and job creation, see major issues for the economy throughout 2009 and even into 2010.
You chart guys are a scream.