Market Commentary: The S&P 500 index temporarily breached its August 2007 intra-day low today before turning around to close slightly above that level. The retest of those August lows is now in process, but the test is far from over. Even if the test eventually fails, a rally from this point is expected, though certainly not a sure thing. Earnings reports have been mixed, with the majority casting doubt on the upcoming year. The disappointing report from Intel (INTC) did not help. Not all is bleak though as IBM Corporation (IBM) pre-announced some upside surprises and Oracle (ORCL) found enough compelling value to announce the acquisition of BEA Systems (BEAS).
The 10-year Treasury yield hit a new 46-month low of 3.655% today before moving back up to close at +3.71%. Bond investors are pricing in an economic recession, and further easing by the Fed is being taken for granted.
Sectors: The Financial sector declined nearly 30% in about seven months. This represents a relatively large amount of destruction in a relatively short period of time. At some point a rally will begin. Given the magnitude of the decline, we would not be surprised if the rally has the appearance of a new bull market for the Financial sector. When it comes, it will likely be a tradable rally, but we would be reluctant to call it a new bull. One must keep in mind that a retracement move of 50% is still a retracement move, and the subsequent leg could very well be a down leg. The Consumer Discretionary and Telecom sectors are also in bear markets. Meanwhile, Healthcare and Utilities are posting year-to-date gains.
Styles: The style rankings have a decidedly bearish hue. The Small Cap Value and Micro-Cap categories have both achieved full bear market status with declines in excess of -20%. Mid Cap Value, Small Cap Blend, and Small Cap Growth could easily join them if the selling persists. The Russell 2000 is at its lowest point in nearly 18 months. The July 2006 low is just a couple percent below current levels and could provide some technical support. However, if it fails, it could be another 10% drop before the next support level is reached.
International: The so-called “developed” markets of the world took another hit this past week. The UK felt the sting more than others and now finds itself at the bottom of our global rankings, allowing the USA and Japan to move up a notch. Most emerging markets sold off strongly the past two days as investors assessed the impact a US economic recession could have on other parts of the globe.
The 10-year Treasury yield hit a new 46-month low of 3.655% today before moving back up to close at +3.71%. Bond investors are pricing in an economic recession, and further easing by the Fed is being taken for granted.
Sectors: The Financial sector declined nearly 30% in about seven months. This represents a relatively large amount of destruction in a relatively short period of time. At some point a rally will begin. Given the magnitude of the decline, we would not be surprised if the rally has the appearance of a new bull market for the Financial sector. When it comes, it will likely be a tradable rally, but we would be reluctant to call it a new bull. One must keep in mind that a retracement move of 50% is still a retracement move, and the subsequent leg could very well be a down leg. The Consumer Discretionary and Telecom sectors are also in bear markets. Meanwhile, Healthcare and Utilities are posting year-to-date gains.
Styles: The style rankings have a decidedly bearish hue. The Small Cap Value and Micro-Cap categories have both achieved full bear market status with declines in excess of -20%. Mid Cap Value, Small Cap Blend, and Small Cap Growth could easily join them if the selling persists. The Russell 2000 is at its lowest point in nearly 18 months. The July 2006 low is just a couple percent below current levels and could provide some technical support. However, if it fails, it could be another 10% drop before the next support level is reached.
International: The so-called “developed” markets of the world took another hit this past week. The UK felt the sting more than others and now finds itself at the bottom of our global rankings, allowing the USA and Japan to move up a notch. Most emerging markets sold off strongly the past two days as investors assessed the impact a US economic recession could have on other parts of the globe.
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