The Markets This Week
STOCK MARKETS MUST look ahead, but the burden of anticipation can wear heavy.
For seven uncertain months, investors hoping for economic recovery had to look beyond the recession's pain to buy stocks. Yet when their hunch was finally confirmed — by government data showing that our economy grew 3.5% in the third quarter after a year of shrinkage — it seemed time to move on.
Stocks fell 3.9% last week, including a broad 2.8% beating on Friday. Result: October dealt investors their first monthly loss since February. Is the market now anticipating a departure of the very economic expansion that has just arrived? Traders believe — cheesy phrase alert! — "the trend is your friend until it hits a bend," and after an almost non-stop seven-month climb, everyone is on prickly watch for the first sign of that turn.
There was unmistakable evidence the market was no longer as enamored by good news. Companies reporting better-than-expected profits barely eked out gains, while those missing their targets were socked. Selling was exacerbated by money managers anxious to protect their gains as their fiscal year drew to a close Oct. 30, and the impulse to "sell on the news" grew so pronounced some traders began to unload even before companies had reported said news.
The S&P 500 has retreated 5.6% in the two short weeks since it closed at 1098 on Oct. 19. Still, it's hard to read too much into a pullback that merely corrects the bullish excesses accrued after a 60% rally. "The inability to embrace good news is always a concern," says one Wall Street managing director and technical strategist. But the crop of stocks surpassing their 50-day moving averages has pulled back from 88% in mid-October to about 38%. In other words, the market's momentum has merely reset from over-zealous to neutral.
The big test will come this week, when November (and a new fiscal year for many mutual funds) kicks off with three important pieces of news: On Monday, bulls want to see data corroborating their notion of manufacturing expansion, with the Institute for Supply Management index ticking up to 53 in October from 52.6 in September. The Federal Reserve meets at midweek and its utterances will be scrutinized for hints about the withdrawal of monetary largesse. Come Friday, the government is expected to announce that 175,000 jobs disappeared last month. How stocks react — if better-than-expected data can spark further gains — will offer a more accurate gauge of the market's mood.
THE DOW ENDED LAST week down 259 points, or 2.6%, to 9713. It swung through six triple-digit moves in seven days, jumping Thursday on the GDP news before falling 250 points Friday, its biggest one-day hit since April. The Nasdaq Composite had run up the furthest this year and had the most profits to harvest; it tumbled 109 points, or 5.1%, to 2045. The Russell 2000 fell 38, or 6.3%, to 563 (Source: Barrons Online).
For seven uncertain months, investors hoping for economic recovery had to look beyond the recession's pain to buy stocks. Yet when their hunch was finally confirmed — by government data showing that our economy grew 3.5% in the third quarter after a year of shrinkage — it seemed time to move on.
Stocks fell 3.9% last week, including a broad 2.8% beating on Friday. Result: October dealt investors their first monthly loss since February. Is the market now anticipating a departure of the very economic expansion that has just arrived? Traders believe — cheesy phrase alert! — "the trend is your friend until it hits a bend," and after an almost non-stop seven-month climb, everyone is on prickly watch for the first sign of that turn.
There was unmistakable evidence the market was no longer as enamored by good news. Companies reporting better-than-expected profits barely eked out gains, while those missing their targets were socked. Selling was exacerbated by money managers anxious to protect their gains as their fiscal year drew to a close Oct. 30, and the impulse to "sell on the news" grew so pronounced some traders began to unload even before companies had reported said news.
The S&P 500 has retreated 5.6% in the two short weeks since it closed at 1098 on Oct. 19. Still, it's hard to read too much into a pullback that merely corrects the bullish excesses accrued after a 60% rally. "The inability to embrace good news is always a concern," says one Wall Street managing director and technical strategist. But the crop of stocks surpassing their 50-day moving averages has pulled back from 88% in mid-October to about 38%. In other words, the market's momentum has merely reset from over-zealous to neutral.
The big test will come this week, when November (and a new fiscal year for many mutual funds) kicks off with three important pieces of news: On Monday, bulls want to see data corroborating their notion of manufacturing expansion, with the Institute for Supply Management index ticking up to 53 in October from 52.6 in September. The Federal Reserve meets at midweek and its utterances will be scrutinized for hints about the withdrawal of monetary largesse. Come Friday, the government is expected to announce that 175,000 jobs disappeared last month. How stocks react — if better-than-expected data can spark further gains — will offer a more accurate gauge of the market's mood.
THE DOW ENDED LAST week down 259 points, or 2.6%, to 9713. It swung through six triple-digit moves in seven days, jumping Thursday on the GDP news before falling 250 points Friday, its biggest one-day hit since April. The Nasdaq Composite had run up the furthest this year and had the most profits to harvest; it tumbled 109 points, or 5.1%, to 2045. The Russell 2000 fell 38, or 6.3%, to 563 (Source: Barrons Online).
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