The Markets This Week
EVEN AS STOCKS ABSORBED THEIR FOURTH LOSS in five weeks, it isn't hard to detect glimmers of hope. The question is whether such hope is warranted.
Consider the evidence: A January survey conducted by Merrill Lynch showed fund managers still hoarding cash, but the huddle bracing for a weaker global economy has shrunk to 24% from 65% in October. The consensus among traders is for stocks to "retest" their Nov. 20 lows, as though all the Standard & Poor's 500 needs to turn higher is another brief stint near 752. Many still expect the government to arrest the economic slide, and stocks down as much as 2.6% Friday recovered as traders dutifully covered short bets heading into a weekend that might hatch a plan to bail out banks.
Friday's bounce cut the Dow Jones Industrial Average's loss last week to 204 points, or 2.5%, as it ended the week at 8078. The Nasdaq Composite Index fell 52, or 3.4%, to 1477, while the Russell 2000 slid 22, or 4.7%, to 444.
In a tightly coiled market, widespread anticipation of a retest can unleash a buying jag once stocks approach — and then stabilize near — their November lows. But any rally could prove hard to sustain until the pace of economic decline begins to relent, and until lingering doubts are dispelled. These include bank losses that have spread to afflict financial processors and asset managers once thought safer, like State Street (ticker: STT), and it isn't clear if write-downs so far are enough to cover the blight.
"To be successful, we really need to halve the level of private debt as a fraction of underlying asset values," notes the chairman of a Boston money manager. "This implies that by hook or by crook, somewhere between $10 trillion and $15 trillion of debt will have to disappear." The possible recourses — drastically writing down debt, saving more and mending balance sheets over a long period of time, or inflating the hell out of our debt — are all fraught with uncertainty and take time to work.
A sizable gap also exists between analysts' bottom-up profit projections and strategists' top-down estimates for a nearly 30% profit decline, and downgrades still to come will add resistance to stocks' advance. Last week, strong results from the likes of Apple (AAPL) and Google (GOOG) failed to allay the gloom from Microsoft (MSFT) and eBay (EBAY), and General Electric (GE) reported a 44% profit slide.
Of the 170 companies that have reported earnings, only 45% beat estimates, which, if it persists, will make the fourth quarter the worst in more than a decade, says a market analyst. Those beating projections were rewarded with one-day pops averaging 4%, but those missing the mark were drubbed 6.9%, and the market shows its bearish tilt in the average 1.2% decline for all reporting stocks (Source: Barrons On-Line).
Consider the evidence: A January survey conducted by Merrill Lynch showed fund managers still hoarding cash, but the huddle bracing for a weaker global economy has shrunk to 24% from 65% in October. The consensus among traders is for stocks to "retest" their Nov. 20 lows, as though all the Standard & Poor's 500 needs to turn higher is another brief stint near 752. Many still expect the government to arrest the economic slide, and stocks down as much as 2.6% Friday recovered as traders dutifully covered short bets heading into a weekend that might hatch a plan to bail out banks.
Friday's bounce cut the Dow Jones Industrial Average's loss last week to 204 points, or 2.5%, as it ended the week at 8078. The Nasdaq Composite Index fell 52, or 3.4%, to 1477, while the Russell 2000 slid 22, or 4.7%, to 444.
In a tightly coiled market, widespread anticipation of a retest can unleash a buying jag once stocks approach — and then stabilize near — their November lows. But any rally could prove hard to sustain until the pace of economic decline begins to relent, and until lingering doubts are dispelled. These include bank losses that have spread to afflict financial processors and asset managers once thought safer, like State Street (ticker: STT), and it isn't clear if write-downs so far are enough to cover the blight.
"To be successful, we really need to halve the level of private debt as a fraction of underlying asset values," notes the chairman of a Boston money manager. "This implies that by hook or by crook, somewhere between $10 trillion and $15 trillion of debt will have to disappear." The possible recourses — drastically writing down debt, saving more and mending balance sheets over a long period of time, or inflating the hell out of our debt — are all fraught with uncertainty and take time to work.
A sizable gap also exists between analysts' bottom-up profit projections and strategists' top-down estimates for a nearly 30% profit decline, and downgrades still to come will add resistance to stocks' advance. Last week, strong results from the likes of Apple (AAPL) and Google (GOOG) failed to allay the gloom from Microsoft (MSFT) and eBay (EBAY), and General Electric (GE) reported a 44% profit slide.
Of the 170 companies that have reported earnings, only 45% beat estimates, which, if it persists, will make the fourth quarter the worst in more than a decade, says a market analyst. Those beating projections were rewarded with one-day pops averaging 4%, but those missing the mark were drubbed 6.9%, and the market shows its bearish tilt in the average 1.2% decline for all reporting stocks (Source: Barrons On-Line).
Posted by The Weekly Commentary at 1/26/2009 11:45 AM 
Categories: stock market, economy, bond market
Categories: stock market, economy, bond market
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