I say that because while the news was terrible, the stock market reaction was great. After tanking around 260 points, the Dow Jones Industrial Average reversed and ran to the upside – closing up by around 200.
That was the biggest reversal we’ve seen since Oct. 4, 2011. Stocks then surged another 300 points or so today, which does beg the question: “Is everything awesome again?”
Well, the bull case seems to be that this is a carbon copy of fall 2011. That’s when we had just experienced a sharp drop in stocks caused by the debt-ceiling debacle. After chopping around throughout August and September, stocks bottomed out and did a moon-shot into November. A late-year pullback held at a higher high, and stocks were off to the races for the next three years.
But I see a major flaw in that line of thinking. That 2011 correction didn’t stem from a fundamental, economic or credit market driver. It stemmed from a largely political standoff over the debt ceiling. So once the political standoff was resolved, stocks were free to resume their bull market run.
|The bull/bear debate rages on.|
That bounce back in the fall of 2011 also had the benefit of an easy-money tailwind, coupled with a total lack of disorder in credit or stock markets here and abroad. Conditions today are completely different. Stock, bond and currency markets are in turmoil worldwide, and investors are no longer “buying” central bank talk and action. They’re selling it.
We also just got another weak report in the ISM Services index. It fell to 56.9 in September from 59 a month prior. That missed forecasts for 57.5. A sub-index that tracks new orders plunged by the largest in any month since November 2008, which was in the midst of a recession.
So while I think you have to respect and acknowledge the short-term bounce, I don’t think it changes anything for the longer term. This still looks, smells and acts like a bear market. If anything, the move all but confirms we’re in one, considering huge, short-term, countertrend rallies are a calling card of every single bear market I’ve ever studied or traded through. So invest accordingly.
|“This still looks, smells and acts like a bear market.”|
What do you think, though? Is this the start of a significant year-end rally like in 2011? Or is it just another bear market bounce? Can we count on central bank talk or action to spur a big rebound like in 2011, or has that ship already sailed? Do you think the fundamentals are improving or worsening longer term, regardless of what happens in the very near term? Let me hear about it over at the Money and Markets website.
“Jobs Fridays” are always interesting days in the markets, and last Friday was no exception as I said. So what did you have to say about the data and the market reaction at the end of last week? Here’s a sampling …
Reader Mike S. said: “It really is simple. We cannot have prosperity in America and keep buying from China. All those trade agreements need to be torn up. We sell virtually nothing to them. Buy American-made and demand American made, or prepare to lose our country and the future of the free world for that matter.”
Reader H.C.B. said: “All the recent dire economic news and reports may be true, but it’s probably not new. I notice it receives more attention from the press. All of a sudden, as public mood shifts into negative, things are viewed somewhat differently.
“True, the stock market has lost its momentum and declined off its highs. Janet Yellen’s inability to instill confidence by having indecisive policy and actions is contributing to the overall uncertainty and funk the stock market finds itself in … But at this point, a bear market or recession is not necessarily certainty, despite the negative public sentiment and data.”
Reader Chuck B. said: “It is unbelievable that new jobs fell for the last couple of months, labor participation is the lowest since 1977, 10-year bonds fell, and the stock markets all rose. Talk about looking at the world through rose-tinted glasses. Whatever those buyers are on, I want some!”
Finally, Reader Tom said: “You are looking at the wrong number. While jobs are certainly important, the most significant number is profits — the ‘mother’s milk of stocks.’ Keep an eye this upcoming week on earnings, revenues and profits of some huge companies. It will tell the tale of the rest of year, in my opinion. If profits are strong, then I predict a nice bounce for the rest of the year. If not, stocks will continue a downward spiral.”
Thanks for sharing those observations. Some of you are clearly worried about a market meltdown. Others think we could rally into year-end as investors settle down and take advantage of bargains out there.
I think it should be clear by now where I come down on this whole debate. But if you have anything else you want to add to the discussion, please do head over to the website and share.
Struggling clothing company American Apparel filed for Chapter 11 bankruptcy today, brought low by too much debt and weak sales. The Los Angeles-based online and physical store retailer has about 10,000 employees, though it’s unclear how many will lose their jobs amid expected store closings.
Saudi Arabia continues to burn through reserves amid low oil prices and ongoing domestic spending efforts. The country’s reserve hoard shrank to $654.5 billion in August from $661 billion in July, putting it at the lowest since February 2013.
The U.S. is ramping up its anti-ISIS operations in Syria just days after Russia began bombing Syrian targets to advance its own aims. The Pentagon will now provide ammunition and weapons directly to fighters it believes can push ISIS back in the northeast part of the country.
Want to take cash out of an ATM that isn’t operated by your own bank? Then be prepared to pay through the nose for it. Bankrate.com’s annual study of ATM fees found the average cost for non-customer withdrawals rose to $4.52, up 21% in the past five years.
Are you sick of paying ATM fees? Does the U.S. approach to pushing back terrorists in Syria make sense? What about declining global reserves … will that put downward pressure on world markets? Let me hear your thoughts over at the website.
Until next time,