Jekyll & Hyde Markets Continue

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After substantial losses during the previous week, the equity markets continued to show signs of massive volatility over the past five trading days, as this so-called “Jekyll & Hyde” market action continued. On the one hand the markets started off this past week poorly, but then hope for a new QE3 program on Tuesday helped the overall market put in this past week’s bottom, followed by gains on both Thursday and Friday. When it came to weekly sector performance, it was not surprising to see that both gold and bonds were the only groups to show continued leadership. However, stocks ended up having suffered their fourth loss in the past five weeks, falling at times toward the threshold that marks the beginning of a new bear market.

Last week was definitely five days that investors would just as soon forget. It was definitely a yo-yo market as the Standard & Poor’s 500 had a record run of four straight days of daily moves surpassing 4%, up or down, as the stock market continued to struggle to find a bottom. It got so bad last week, that at one point equities had skidded 17% in just 11 days, a sure sign that investors are certainly pricing in the increasing odds of a recession, exacerbated by government belt-tightening in developed countries and credit-tightening in emerging economies. To show you the vast devastation of the recent slid, big-cap stocks are 18% below their late-April highs, while small stocks have now skidded some 25% to fall below the 20% market, which marks the move into a conventional bear-market territory.

Despite the wild swings of last week, most of the major domestic indexes ended the week down only moderately. The Dow was down 1.5 percent; the S&P 500, down 1.7 percent; the Nasdaq, down 1.0 percent; and the Russell 2000, down 2.4 percent.

On a year-to-date basis, the major indexes are now all firmly in the red. The major indexes are now down as follows: the Dow, down 2.7 percent; the S&P 500, down 6.3 percent; the Nasdaq, down 5.5 percent; and the Russell 2000, down 11.0 percent.

Treasury securities continued to once again post strong gains last week, as investors were falling all over themselves as they leaped into U.S. Treasuries which drove the yield on 10-year note down to 2.145% at midweek – the lowest level since the credit crisis and a far cry from the 3.74% level as recently as February. With the benchmark yield ending last week below 2.3%, a whopping 22 out of 30 stocks in the Dow Jones Industrial Average are now paying a dividend yield richer than 10-year Treasuries. There is no doubt that the Federal Reserve’s promise to keep rates low through at least mid-2013 has caused the U.S. yields to plummet. Right now the 30-year bond’s yield Friday was only at 3.707%, down from 3.8455 a week earlier. Meanwhile, the two-year Treasury note trade this past Friday with a yield of only 0.191%, down sharply from the 0.296% it had fetched during the prior week. Right now analysts are predicting that after the Fed’s action to push down shorter-term yields, investors on the hunt for return would be forced to buy longer-dated debt.

Looking ahead to this week, manufacturing, housing and inflation news will be dominating the spotlight. Empire States stars on Monday while industrial production will be in the focus on Tuesday. The Philly Fed follows on Thursday. Housing starts (Wednesday) and existing home sales (Thursday) will be closely monitored over the course of this week as well. The producer price index and the consumer price index will share the headlines with the housing data on Wednesday and Thursday. The number of companies reporting earnings will begin to slow somewhat, although a few of the big-name companies that are scheduled to report include the following: Sears, Hewlett-Packard, Marvell, Salesforce, Agilent Technologies, Urban Outfitters, Dell Computer, and Home Depot.

Well, it’s now official! Apple became the largest stock in the world based on market capitalization, nudging past ExxonMobil this past Tuesday. However, the glory was certainly short-lived as ExxonMobil quickly retook its post, but just barely. By last week’s close, Apple had a market cap of $349.5 billion, versus the oil giant’s $350 billion. Falling oil prices were the culprit behind the lag, while at the same time the new figures on the Apple iPad continued to dominate the tablet business. Don’t be surprised if Apple takes over ExxonMobil once and for all in the very near term future.

As we head into the midst of the summer heat, don’t be surprised if this wild volatility continues, at least for the short-term. While this back-and-forth action can be emotionally draining, it’s actually quite healthy for the market’s overall as investors jockey to seek an overall ‘floor’ for equity levels. As soon as we get some consolidation the markets will once again be in position to head northward. As Rudyard Kipling famously said, “If you can keep your head when all about you are losing their…then yours is the earth and everything that’s in it.” Again, should you have any questions or concerns, be sure and give us a call. Until next week, take care!

Sources: Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com

 

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