The SP500 closed at 1325 on Friday, the 18th, and in keeping
with today's sellathon, the SP500 E mini was printing down
between 1260 - 1270. A little touch of panic. The foreign
markets get a crack at it again overnight.
The US stock market has stopped its pussyfooting around. The
drop in the E mini says traders are pricing in an economic
downturn of consequence, with profits to fall sharply as
2008 unfolds. As I have pointed out, the leading economic
indicators have fallen far enough from peak levels to signal
a recession, but further downside thrust in the indicators
may be required to seal the deal.
At this point, we need to track the more or less coincident
indicators to see if the economy is about to "cycle down." By
that I mean weakening employment and incomes which beget lower
sales and production, which in turn foster another round of
job losses, and so on. I watch real retail sales, real spendable
earnings, production and household employment. On balance here,
the economy is stagnating, with employment growth and real
spendable earnings up about 0.2% yr/yr.
The "average" stock is down a little over 20% since the 2007
highs. So it is a bear market as far as I am concerned. The
market was in panic mode today but is also very deeply oversold.
The bet is being made that recession and likely resultant
additional credit losses are coming. My SP500 Market Tracker
sits at around 1375 and does not immediately envision the leaner
times the market now expects. When the market starts to trade
well away from the Tracker, I focus most heavily on near term
fundamentals to see if the market's view is being confirmed or
if It is overshooting (to the downside in this case).
Feeling a bit queasy? Stay well puckered and try some Prilosec...
Good stuff for acid reflux.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!