Last week the stock market pretty much marked time even though the headliner Dow did break above the magical 12,000 level and now has stayed there for two days in a row. With options expiration on Friday, we though there might be some volatility and we did get a modest amount but nothing worthy of mentioning. In fact, the volume was just average making even the price moves, small as they were, meaningless.
To be sure, there were a few outstanding performances on what seemed like good earnings to Wall Street. GOOG was the notable winner in this category last week, jumping 33 points on Friday, almost 8%. We note that GOOG traded strongly higher but still under the all time high price closing around 460 with the high at 475. Granted, this miniscule 15 points does not seem like much given Friday’s 33 point advance, but the fact remains that it is still under its high with the Dow at new all time highs. GOOG has been the darling of so many Wall Streeters and Friday was an important GOOG move but it failed to ignite much follow through in the rest of the market.
The markets all opened stronger on the back of GOOG’s news but almost faster than they jumped on the news, they fell. About five minutes into the day, the Dow was up about 40 points and from there it dropped 100 points so that it was down about 60 on the day. For the rest of the day the Dow clawed its way back up to close only down about 9 points.
One of the biggest leaders of this market rally over the past three or four years, until May, that is, has been CAT (Caterpillar). This stock climbed from around 18 four years ago to 82 in May of this year, a stunning run. You might think that CAT would be one of the stocks taking the Dow to this new 12,000 level but, no, CAT has only brought it up, or held it up so that it could get to new highs. CAT fell 14% on Friday, based on difficult earnings, to 59. CAT is a Dow component and now has put a drag on it since May to the tune of 23 points, losing nearly a third of its value. These are not the kind of things that happen in a bull market.
CAT is not the only casualty of this earning’s season; there have been many land mines that have caused stocks to blow up. True enough, there have been the plus stories like GOOG, but there have been negative stories as well.
In the coming week, we have the Fed Meeting with an interest rate “decision” on Wednesday. Normally, this would be the biggest news of the week, but we have concluded that the Fed is a big non-event to the market anymore. The market has started to mostly ignore the Fed, pretty much knowing they will not raise rates. Even with the saber rattling that Bernanke has been doing this past week, there will be no rate hike this week or again for the foreseeable future as far as we’re concerned. I know the Fed doesn’t like to lose power but I don’t think there is anyway they would upset the apple cart a couple of weeks before the elections with a rate change of any kind.
Other economic news that we get this week will include more earnings as well as September existing home sales on Wednesday and new home sales on Thursday. Durable goods orders are released on Thursday morning before the market opens and could give us a signal as to the strength of the economy. We’ll see how the market responds to these various items as they are released.
Thanks for the comment, Erick. When the other shoe drops, it will be loud.
Dow Industrials: 12,002.37 -9.36
VIX: 10.63 (very low again)