Has the market really bottomed? Maybe. Perhaps.
Posted
Apr 04 2008, 10:55 PM
by
Charley Blaine
Rating:
There are enormous amounts of chatter about whether the markets have bottomed.
So, what's the evidence?
The market itself. Down as much as 18% in January from its Oct. 9, 2007 all-time closing high, the Dow Jones Industrial Average's loss has been trimmed to 11%. The Standard & Poor's 500 Index, briefly down 20% on March 17 from October in the turmoil over Bear Stearns, is now off 12.4% from its October peak. And the Nasdaq Composite Index's loss from a peak on Oct. 31 has shrunk from 25% on March 17 to 17% on Friday. OK, let's turn the thought around. The Dow is up 8% from its lows in January. The S&P 500 and the Nasdaq are both up 9% and 10% off their lows on March 17. Lastly, the S&P 500 moved above its 50-day moving average on March 24, briefly dipped under it and has moved above it again. Moreover, the moving average has started to rise for the first time since November.
The Federal Reserve. Ben Bernanke & Gang have made it clear they won't allow the financial system to collapse. That was the result the Fed and many on Wall Street had feared would happen if Bear Stearns had been forced to file for bankruptcy protection. Instead, Bear Stearns has agreed to be acquired by JPMorgan Chase.
It doesn't look like any more Wall Street firms are going to collapse. Lehman Bros. was the likeliest candidate for a big problem and got through the week in one piece. I admit, however, that, in the wonderful world of Wall Street, you never know. There are worries about non-Wall Street financial institutions, specifically Washington Mutual, which looked like it was being raided by short sellers on Friday.
Tech stocks are starting to move higher. Google hit a low of $412.11 on March 17 and has risen 14% since. Intel is up 21% since Jan. 22. Apple is up 33% since bottoming on Feb. 26. (Stephen Coleman, writing on Seeking Alpha, thinks the stock could hit $300 this year, I'm not sure I'd agree, but check out his thinking here.)
Housing may be bottoming. This is a very tentative conclusion at best. It is true that the monthly existing-home sales stats from the National Association of Realtors and the new-home sales stats from the Commerce Department are suggesting some stabilization of sales in January and February. The problem with the assertion is that the reports are both projections based on very low actual sales. I've been around these numbers since 1982, and I don't get excited by any sales number in December, January or February. For most of the country's, it's winter, and people move in the summer. We'll get a much better idea of whether the thesis holds when the April numbers start to show up. That'll be in mid-May.
But -- and this is a big but -- foreclosures and mortgage delinquencies are rising, and Bloomberg News reported today that many banks are so overwhelmed by mortgage problems with their customers that they've started to look the other way. And John Mauldin, writing on Minyanville, marshals a lot of evidence to make even the most optimistic real estate agent think twice before declaring happy days are here again.
What is undeniable is that home building stocks are rising. The Philadelphia Housing Sector Index is up 28% from its low in January. Check out the chart. Pulte Homes is up 73% from its lows in January. (Check out Pulte's chart.) But remember: The index did fall 60% between July 2005 and January 2008.
That makes a pretty convincing case for a bottom. Could the conclusion be wrong? Absolutely. Let us count the ways.
We could be enjoying a bear-market rally. These can be truly maddening: The market goes up for a while and then tumbles again. One such rally pushed the S&P 500 up 170 points, or better than 8%, from Nov. 26 until Dec. 11. Then, the S&P 500 dropped 250 points until late January. After the Sept. 11, 2001 terror attacks, the S&P 500 dropped to as low as 944.75, then rebounded 24% by the following January. Then, it FELL 34% by October 2002.
You don't know what you don't know. Unfortunately with all the bright guys who designed computer models to justify their banks loading up on illiquid securities backed by subprime mortgages don't know exactly what's backing those securities. It may be year-end before we really do know.
The consumer looks to be in trouble. Jobless claims are rising; payrolls are falling. Retail sales look weak. Auto sales are especially dicey. And it's not just the American auto makers who are suffering. Toyota, Nissan, Honda, Nissan, Mitsubishi and Mazda also are experiencing sales slumps. (Check out the March sales figures from Autodata.) Delinquencies are credit cards are soaring. $3.35-a-gallon gasoline is painful. And one last thing: Home prices are falling.
Inflation is rising. Food prices are up. Air fares are rising. Healthcare costs are moving higher. Even the Fed is worried about inflation.
My gut says it's premature to say the market has bottomed or even that there's good reason for a bottom now. But I do find the nibbling at housing, technology and metals interesting and worth watching. And I'm going to watch FedEx closely. The stock fell 29% between July and March 17. It's up 17% off that bottom. FedEx is one of those companies that offer investors an idea of where the economy is headed. If people ship more, the theory goes, business must be getting better.
Maybe. Perhaps.
