Top Line: The stock market has now been down during the period of normal strength, that being the end of the month [year] and start of the month [year]. Wednesday's low in the Dow was 13,000 and the bounce off that round number was expected. What the market chooses to do now is going to be worth watching. As we have said, the Dow should be headed to 12,500.
The news on SBUX is that it hit a new low on an analyst downgrade (a little late) but it points to our premise that the consumer will lead this economy into recession--a consumer led recession is not a common event so few realize that it is happening. The world is not paying attention to the 2/3's of the economy that is now in pull back mode. SBUX numbers are telling us that the consumer is pulling its spending in a bit, that $5 cup of coffee is being skipped once in a while.
Here we are one day into 2008 and the Fed is already trying to pump the stock market. Wednesday's medicine came in the form of the Fed minutes from the last FOMC, held on December 11th. By now you've read the news that the Fed thinks it will need to lower rates substantially. Well, what do you know, they are finally realizing this. They are usually a little late to the party so we're not surprised.
The market was surprised by a few things on Wednesday. First, the fact that manufacturing indicated poor prospects in December inspiring selling and, second, the Fed's minutes were released prompting the response that the Fed would [try] to save the day and buying commenced. That rally happened late in the day but pretty much was erased by the end of the day as stocks fell hard on the first trading day of the year.
The US Treasury bonds were strong as was gold and oil, strange combo there. As we write, the Asian markets are trading lower in response to the US markets' decline, as usual. As we see it, Wednesday's market should have helped to create an oversold condition but our indicators don't show that tonight. This leaves the market open to go down more, even though the overnight futures are up a bit right now.
Tomorrow brings the first in a series of major political events, that being the Iowa caucus. We will only report on the politics as it relates to the stock market so we don't expect much.
FSI: 105.85 (not down much, AMZN was strong)