David White

Closing Update for Tuesday, September 1: Third Day of Pullback

Bill L: I couldn't agree more. Art Cashin said he believes fair value for the S&P500 is in the 850 to 880 range. We are a long way from there. There was also some not so good news included in the ISM numbers. For instance, the Aug. New Orders index was up almost 10 points from July. The Aug. Manufacturing PMI was up 4 points from July. Yet the Aug. Employment Index was only up 0.8 points from July (i.e. a jobless recovery). Plus the Aug. Prices Index was 65.0 vs. July's 55.0 -- an 18.2% increase. That huge rise has got to start the Fed worrrying seriously about inflation. That will translate into less stimulatory action from the Fed, and the Fed is already cutting back on its stimulatory actions. In fact it has been shrinking the money supply for several months now. It has announced the end of the $300B Treasury buying program in October.

On top of that, the ICSC and the Redbook Retail Sales numbers were bad again. The economy will have a hard time making a sustained recovery without consumer spending. Add the auto sales figures to that. They were positive as expected, but they generally disappointed the analysts, who had been looking for more. It was fairly clear that much of the positiveness in the numbers was simply attributable to Cash for Clunkers. Plus Cash for Clunkers may have robbed future sales to record sales now. This might well make one worry about future auto sales figures.

In sum most of the good news seems almost directly attributable to government stimulus programs. When the stimuli start going away, one has to worry about where the economy is likely to go. More short term, the market will likely turn on the news that comes out tomorrow morning. With about a 300 point move down from the high today to the current $100.10 on the SPY, the market has made a huge single day move. I would tend to look for a bounce tomorrow morning, but I would be paying close attention to the news. There is overhead resistance for SPY at about $101.60. It might make it that far, if the news tomorrow is good. If the news is bad, the slaughter may continue.