Market Update | Nov 24, 2008

Weekly Results:

S&P 500 800.03 -8.39% 

NASDAQ 1,384.35 -8.73% 

Russell 2000 406.54 -10.95% 

MSCI Emerging Markets 20.22 -10.71%

 

Bailouts and intervention are increasingly playing a major role. This weekend's bailout of Citigroup can create some near-term recovery.  Overall, confidence restoration is not fully visible among participants. Clearly, various asset classes are oversold but too short term oriented.

Calling bottoms and selecting stocks seems too risky for market participants. Again, these lessons keep repeating in a period of turbulence. Weekly declines partially describe the full story as the S&P is down 45% year-to-date. Credit fears and a worsening economy continue to paint and reinforce the current condition. Generally, market extremes are poised for mean-reversion. Despite, growing pessimism the market dislocation has yet to recover. From various perspective, investors have noticed that stocks are cheap. Interestingly, various headlines point out the historical magnitude of recent performance. Crude is below $50 and VIX is above 70. Perhaps, this relationship paints the picture of a new era. In addition, the S&P 500 broke below 2002 levels of 768. This serves as a key mark for cycle observers by confirming the downturn in this cycle correction.

"The lowering of the Fed funds rate, the Fed's innovative programs to provide liquidity to financial institutions and more lenient rules for borrowing through the discount window appear to have exhausted the gamut of possibilities routed through monetary policy changes to influence aggregate demand." Asha Bangalore (Northern Trust)

The fear in credit markets and de-leveraging processes are greatly impacting the dynamics of trading. For bargain hunters, select opportunities appear tempting on a historical basis. On the other hand, this is a difficult environment for long-term buyers. Stabilization is desperately required given increasing default risk and forced selling. In picking stocks, investors face multiple variables that create a difficult trading environment. That said, more patience is needed. Managing risk has become a  labor intensive process with undefined trends. Thus, mapping out a 3-6 month investing plan presents a very high risk/reward. Nonetheless, a furious recovery is possible given that the S&P 500 is 35% removed from its 200 day moving average.

Interesting Perspective:

"The dividend yield on the S&P 500 is now greater than the yield on the 10-year Treasury. That hasn't happened since 1958".(Barrons 11-24-2008)

Macro Levels:

Crude [ $49.93] : Downside momentum building after breaking below $60. Next significant range around $40, last reached in 2004. 

Gold [$774.50] Early signs of bottoming between $712-750 range. Again, the long-term trend does not showcase an entry point.

US 10 Year Yield [3.19%] Sharp drop-off resulting in a 54 basis points weekly decline.  US 10 Year Yield broke below several support levels and  reaching  5 ½ year lows.

DXY – US Dollar [88.19] Strength developing after established lows in mid March. Next support around 84.

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