Most investors were relieved early today that the jobs report was essentially no more devastating than last months report. With the revisions to last month’s figures this report looked even slightly better – at least for a short time.
February nonfarm payrolls fell 651,000, in-line with expectations. Last month’s figures were revised to -655,000. The unemployment rate, however, was a negative surprise, climbing more than expected to 8.1%, the highest level seen in 25 years.
But the sighs of relief did not last nor did the buyers as the day wore on. Too many nervous investors who have held on too long are now capitulating on absolutely any kind of market bounce. And though last minute buying managed to pull the indexes back to the black, “selling on a bounce” remains the main story to end a very powerful week of decline.
The S&P 500 ended the week at -7.03%, the Dow at -6.17% and the small cap Russell 2000 index at a whopping –9.76%, suggesting that the broader market is now playing catch up to the frantic fear selling that has dominated the large cap indexes and shoved them to 1996 lows.
The third market session of this year established the highs for the year. Since that time the S&P 500 has fallen 26.9%, the Dow has fallen 26.5% and the small cap Russell 2000 index has fallen 31.8%. If 2009 is going to end in the black there is a lot of climbing ahead.
There is not a major equity index that has not broken below the 2002 closing lows. Prices for many indexes have dropped back to the 1996 or 1997 levels. The intraday lows are still holding up a little better, but only by a whisker.
It has been so bad since the first week in January that one could say that a technical new recession has been set purely during the Obama watch, which started less than two months ago.
March 6 (Bloomberg) -- President Barack Obama now has the distinction of presiding over his own bear market.
The Dow Jones Industrial Average has fallen 20 percent since Inauguration Day, the fastest drop under a newly elected president in at least 90 years, according to data compiled by Bloomberg.
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More than $1.6 trillion has been erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse. The president is in danger of breaking a pattern in which the Dow rallied 9.8 percent on average in the 12 months after a Democrat captured the White House, according to data compiled by Bloomberg.
“ People thought there would be a brief Obama rally, and that hasn’t happened,” said Uri Landesman, who oversees about $2.5 billion at ING Groep NV’s asset management unit in New York. “It speaks to the carnage that’s in the economy and the lack of confidence in the measures that have been announced.”
A bear market is defined as a decline of 20 percent or more.
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The Dow average has dropped 31 percent since Obama’s election. The 30-stock gauge trades at 8.04 times annual earnings, the cheapest since 1995 and down from 10.06 times on Inauguration Day.
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“ It’s the Obama bear market,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We don’t know what the rules are in so many different areas the government is touching.”
(Bloomberg, March 6, 2009)
By nearly any measure the selling in February and March, following the January presidential inauguration, has clearly pushed the equity market into highly oversold territory - maybe even extreme oversold territory, exhibiting a panic level of indiscriminate selling. By normal technical measures of stochastics and relative strength and mean averages the recent selling is way “overdone”.
Let’s discuss the last statement from the Bloomberg quote: “We don’t know what the rules are in so many different areas the government is touching.”
The masses of America are not personally invested in the stock market. They are doing good to hold down a job and make their payments on housing, food and transportation. Many are without any health benefits at all.
So Obama’s insistence that our current economic misfortunes can be laid at the feet of those responsible for health, education, and energy probably rings true for these masses.
When the new administration comes out of the gates, following the inauguration, with a budget that addresses new social advances for health, education and energy plans for solar and wind these masses likely feel assured that some of their needs will finally be addressed – by the government, no less.
But for investors in the stock market there is a real disconnect here. Investors have felt the crushing blow of the 2008 financial collapse in their personal accounts. And while the social agenda proposed by the administration is laudable, investors also know that behind all that spending there is a tax of some sort, either on them personally or on the companies who get hit with things like the new carbon usage “cap and trade” fees.
Investors know that the increased spending plans and associated taxing schemes are likely going to prolong an already difficult and deep recession. They know that companies are going to have an even harder time being profitable under this budget of spending.
The investors I know are not cold, unfeeling humans. They simply would like to see firm, detailed financial recovery plans and greater attention given to the struggling financial arena first – clean up the financial mess before embracing a new and expensive social agenda.
The administration’s attention to the struggling financial system, as announced by Treasury Secretary Geithner, amounts to mostly a “stress test” of the banking system for a couple of months. That process supposedly will then give the administration enough information to know how to proceed.
Meanwhile, the financial sectors are reeling. This very course of action and lack of detail along with a prolonged bank “stress test” by the new administration has exacerbated this financial ulcer. Investors are developing a sickening “lack of confidence”, as detailed in the Bloomberg article.
I am still hoping for that Obama “honeymoon” rally. I just don’t know what it is going to take before it shows up, though.
Perhaps Geithner or Obama will come out with an early report on the “stress testing”, showing many banks stronger than initially feared. Or perhaps details of the bank recovery plan will be leaked, giving evidence that the new administration really does have its arms around the financial problem.
And perhaps the market will sense that the end has not arrived, that the financial system will right itself. Investors may also see these highly discounted prices as a bargain opportunity for buying. And those who are holding short positions may begin to shudder … and cover … … and then a long-awaited Obama rally will spring to life.
Don’t plan on this next week, though.
In fact, don’t plan on it at all. Wait and make the administration and the market prove it first. There will be plenty of time to get in on the action.
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