The Markets This Week
FINANCIAL MARKETS ARE EXHIBITING SYMPTOMS of anxiety disorder, after six months in recovery. Financial shares led a sharp retreat by stocks on Tuesday. Treasury yields are up, while gold is spurting ahead of other commodities.
Early week concerns, focused on how West Coast banks such as Wells Fargo (ticker: WFC) and Bank of America (BOA) intend to finance their way out of the federal Troubled Assets Relief Program (TARP), left stocks at a modest loss for the week. On the week, the Dow Jones Industrial Average slid 1.1%, or 103 points, to 9441. The Nasdaq Composite slipped 0.5%, or 10 points, to 2019.
No need for Xanax. Stocks have come far, fast, from their March 9 low point, with average gains of 45% to 60%, depending on the index you use. The market remains some 15% to 20% below its level a year ago, and a third below the manic highs of 2007.
And if you believe that the mind of the market must reside in a sound body, well, the economy continues to mend. Last week's employment numbers were poor by any historical standard, but better than expected. The count of non-farm jobs lost in August, at 216,000, was lower than the July number of 276,000. Job-loss trends in the current quarter are improving from the terrible levels of the past three quarters. The Institute for Supply Management's manufacturing index — a widely followed measure of the health of that industrialized 12% of our gross domestic product — ticked up to 53 last week, crossing into the range that's considered expansionary. The overall rate of unemployment rose to the horrid level of 9.7%, but there's hope that a recovery will put those folks to work.
IF THE ECONOMY CONTINUES IMPROVING by bits and pieces, the September-quarter earnings of S&P 500 stocks may end up better than the sequentially flat forecast of analysts surveyed by Thomson Reuters. But with the market already up by half since its March low, is there a stock play for the investor who wants to bet on better-than-expected third-quarter earnings? One such idea occurred to well-known equity while he was reading the short-interest tables in his favorite weekly stock-market tabloid. He suggests buying the shares of some large businesses that are heavily shorted. Among those names: Citigroup (C), Bank of America , EMC (EMC), and Las Vegas Sands (LVS).
It's been a good year to bet against big short positions. As the strategist reported in a Thursday note to clients, in each month since March, the 10 stocks with the largest monthly jumps in short interest have gone on to outpace the S&P 500 in the subsequent month by an average of 8%. Measured over three months, these highly shorted stocks outperformed by 19% (Source: Barrons Online).
Early week concerns, focused on how West Coast banks such as Wells Fargo (ticker: WFC) and Bank of America (BOA) intend to finance their way out of the federal Troubled Assets Relief Program (TARP), left stocks at a modest loss for the week. On the week, the Dow Jones Industrial Average slid 1.1%, or 103 points, to 9441. The Nasdaq Composite slipped 0.5%, or 10 points, to 2019.
No need for Xanax. Stocks have come far, fast, from their March 9 low point, with average gains of 45% to 60%, depending on the index you use. The market remains some 15% to 20% below its level a year ago, and a third below the manic highs of 2007.
And if you believe that the mind of the market must reside in a sound body, well, the economy continues to mend. Last week's employment numbers were poor by any historical standard, but better than expected. The count of non-farm jobs lost in August, at 216,000, was lower than the July number of 276,000. Job-loss trends in the current quarter are improving from the terrible levels of the past three quarters. The Institute for Supply Management's manufacturing index — a widely followed measure of the health of that industrialized 12% of our gross domestic product — ticked up to 53 last week, crossing into the range that's considered expansionary. The overall rate of unemployment rose to the horrid level of 9.7%, but there's hope that a recovery will put those folks to work.
IF THE ECONOMY CONTINUES IMPROVING by bits and pieces, the September-quarter earnings of S&P 500 stocks may end up better than the sequentially flat forecast of analysts surveyed by Thomson Reuters. But with the market already up by half since its March low, is there a stock play for the investor who wants to bet on better-than-expected third-quarter earnings? One such idea occurred to well-known equity while he was reading the short-interest tables in his favorite weekly stock-market tabloid. He suggests buying the shares of some large businesses that are heavily shorted. Among those names: Citigroup (C), Bank of America , EMC (EMC), and Las Vegas Sands (LVS).
It's been a good year to bet against big short positions. As the strategist reported in a Thursday note to clients, in each month since March, the 10 stocks with the largest monthly jumps in short interest have gone on to outpace the S&P 500 in the subsequent month by an average of 8%. Measured over three months, these highly shorted stocks outperformed by 19% (Source: Barrons Online).
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