We’re starting to see stocks drop after companies report good earnings.
That’s not surprising. In fact it’s over due after a rally like this one. The Standard & Poor’s 500 index was up 13% since August 26 as of October 25.
Inevitably after stocks have climbed so far so fast, some investors decide to take profits. Others in the momentum camp decide to sell on the good news. Sure, Cummins (CMI) grew earnings by 140% in the third quarter, it announced on October 25, but to a momentum investor that can mark the time to sell if, as seems likely, the company won’t beat that next quarter.
But it’s easy to over-interpret these kinds of stock specific dips and turn them into some kind of trend. So on October 26—besides a chance to react to the after-hours Cummins earnings report from the day before—the market got a dose of a stronger dollar—which takes a toll on the price of commodity and materials stocks—and some weakness in Europe that stemmed from disappointment that the Swedish central bank said it was thinking calling a halt to the recent rounds of interest rate hikes.
So connect all those dots and we’ve got a correction, no?
Well, no.
The indexes hardly budged on October 26.
The S&P 500 was down all of 0.24 points and the Dow Industrial Average was up 8 points. That’s 8 points. Not 8%.
The market can easily feel worse than it is because a few stocks that have led the market, including some high profile sector leaders such as Texas Instruments (TXN) drop on good news.
This kind of sell on the news weakness could, of course, grow into a correction but for that to happen we’re going to need something more substantial than a few instances of selling by momentum investors.
Like a big disappointment on Friday from the third quarter GDP numbers or next week from the Federal Reserve on the “when” and the “how much” of quantitative easing
Who said wing-nuts were right wing?
schema is very simple:
– feds print money
– they call it QE
– in a series of monetary transactions between feds, government treasury department, banks, and market participants, this extra printed money find its way eventually at technology companies (banks already got it but, as always, are stupid to do anything intelligent with it except to give it back to feds and – earn interest in doing so).
– technology companies got all this (unearned) cash (through perception increase, not productivity; btw, if all intangible investments in the last 15 years have been accounted for properly in the accounting the productivity numbers, usually reported in 2% range, would actually be negative – researchers in bank of minnesota published an article about that), trillions of it, and it sits on their business accounts. companies do “business” and money go from one business account to another, and consequently to personal accounts of employed people in these companies. employed people spend it, and sensing impending doom these people spend it much more than they would usually do, compensating to some extent the missing spending from unemployed people side. their productivity is same low number, yet they got all this extra cash the price of which will be paid by unemployed people in the decades to come.
– because this cash is a gift money (they did not earn it through normal, productive economy), they do whatever they please to do, except give it back, with interest, to unemployed people who paid for these “extraordinary earnings season”. perception on the market increased, and these phoney companies get even more cash. they use it to buy other companies (without asking the price) and buyback even more of their stock, consequently perception on fictional capital increases, and stocks go up – a classical bubble.
– conclusion? the market is over-valued. s&p will go to 950 very soon, eventually it will loose 60% of its current perception level.
the only proper way to handle this crisis was to compensate fully those that lost jobs, with full salary they had while on their jobs. In doing so, companies would think twice before firing somebody. if something is a gift, then this gift must be equally distributed amongst all people. companies DID NOT earn all that cash they “are sitting on”, yet they and their employees enjoy it for two years now (they are so used in this schema that very soon they all will unite requesting more and more printed money, destroying the system completely)
Whirlpool was down 8% during the day and ended 5% down.
Some concerning comments were made by the company, ie. growth in North America and commodity prices. If investors read all the comments they would see there was much to be optimistic about.
Selloff seemed overdone.
Its the dollar. Dollar up, market down. Dollar down, market up.
Its the elections. They are holding up an overbought market till after the elections.
After the elections they will likely let go of the dollar, it will bounce, and we will get the pull back.
My opinion.
Selling without bad news. Is the market ready for a pull back? It has been going up since Aug……..
You tell me, it is very confusing, but I guess it always is, really. It is just the massive hedge fund “instant” trades that have me worried. That and I get a sharp pain in my head everytime you mention CMI, because I did not pick it up when you said to way back at $45 or whatever it was.