Market: A lot has happened since Wednesday’s blog. At the time, it felt like the market had already been incredibly weak. Yesterday, stocks tumbled even further on fears coming out of Europe. Most indices were down in the neighborhood of five percent yesterday. Today, the volatility continued with roughly a four percent intraday move. In the past two weeks, the markets have experienced a very strong downturn, unmatched since 2008. While the overall indices have taken a hit, if one looks at individual stocks, an abnormally high number have sustained drops of fifty percent or more. In many cases, the market is pricing in a 2008-like recession. Company fundamentals look different than they did in 2008; balance sheets are stronger, companies are leaner, and valuations are better.
Russell Small Cap Index (One Year)
Many stock indices were down over ten percent this week.
Extreme Moves: If you are interested in looking at some stocks that have moved down a lot, here are some tickers: STEC, FBC, IMAX, VPRT, AGP, LEAP, AKS, SMSI, AMCC, FOE, PEIX, AONE, CLWR, LINC, JNPR. In general, companies that have missed earnings have been hit extremely hard.
Exxon: I have some friends that own Exxon. This is usually a very steady stock. In the most recent pullback, however, even the mighty Exxon has been hit. It is down around 15% in the past two weeks.
XOM (One Year)
Wall Street Projections: Wall Street Strategists still say (on average) that the S&P will close at 1401 this year. This represents a 17 percent increase from here. I have a feeling this might tick down after the recent debacle
Rates: As investors have fled risky assets, short-term interest rates have dropped to zero. I heard that a major bank is actually charging certain customers to carry large short-term cash balances.
Fear: There is clearly a lot of fear influencing the markets. The VIX has spiked to levels seen during the 2010 retracement and the 2008 debacle. Another sentiment indicator that I look at, the AAII Survey, shows that bearishness has spiked. It is very common for the market to strengthen after such high readings.
Volatility Index (VIX – Six Years)
Jobs Data: There was a lot of fear surrounding today’s jobs data. It turned out that the data came in better than expected. The good news helped the market open higher, but as I mentioned above, that strength soon fizzled.
Market in Gold: Some people like to look at things in terms of Gold, with the idea that Gold is money. Bernanke, of course, disagrees with this viewpoint. I thought it would be interesting to look at the market in Gold terms. The following chart shows the S&P versus an ounce of Gold. It is at the lowest level in at least twenty years:
S&P 500 in Gold Terms (Since 1992)
Today’s Market: Today, the market opened higher only to fall four percent by noon. At which point, the European Central Bank said they would be willing to buy Italian bonds. The ending value on the S&P 500 today was flat, but it was hardly a flat day, and most stocks ended lower. The image below well reflects the market over the past ten days:
Have a good day! Brent
