When You Cannot Believe What You are Seeing

Today’s market action supposedly based on the wonderful things happening with tariffs makes me ponder.  And when I ponder I like to look back at what investors were thinking at important turning points in the past.

So let’s look at the week of October 8, 2007, the week highs were made before the 2008-2009 crash.  It may be longer than our normal posts, but details may matter at times.

 

 

CNN MARKET NEWS for week of October 8, 2007 (the high week before the 2008 – 2009 Crash

October 8 2007: 2:16 PM EDT

NEW YORK (CNNMoney.com) — Stocks struggled Monday afternoon as investors took a step back after last week’s rally and prepared for the first batch of quarterly earnings reports, due later this week.

Trading volume was weak and the treasury bond market was closed due to the Columbus Day holiday.

The Dow Jones industrial average (Charts) lost 0.3 percent about 2-1/2 hours into the session. On Friday, the Dow hit an all-time intraday high before ending just short of a new record close.

 

Debt markets rise from the dead

Stocks had risen Friday after a strong jobs report raised bets that the economy will be able to avoid a recession, despite the impact of the housing and mortgage market meltdown.

 

The financial feeding frenzy

The Treasury bond market was closed Monday due to the holiday.

U.S. light crude for November delivery fell $2.37 to $78.85 a barrel on the New York Mercantile Exchange.

In currency trading, the dollar rose against other major currencies.

The rising dollar sent gold and other dollar-traded commodities lower. COMEX gold for December delivery fell $8.60 to $738.60 an ounce.

 

October 9 2007: 5:44 PM EDT

NEW YORK (CNNMoney.com) — Stocks rallied Tuesday, sending the Dow and S&P 500 to all-time highs as investors breathed a sigh of relief that the minutes from the last Fed meeting supported hopes for another interest rate cut by the end of the year.

The Dow Jones industrial average (Charts) jumped more than 120 points, ending at an all-time high of 14,164.53.

Fed explains the big rate cut

Stocks drifted higher through the morning, flattened out in the early afternoon and then began to rise as investors digested the minutes from the Sept. 18 Fed meeting, released at around 2:00 p.m. ET.

“The market had a desire to keep going up and there was nothing in the minutes to prevent it,” said Paul Mendelsohn, president and chief investment officer at Windham Financial Services.

Mendelsohn said that investors were a little cautious leading into the minutes but once they saw that there was nothing particularly surprising in the minutes, they redoubled their efforts to move stocks higher.

The Dow and S&P 500 carving out fresh all-time highs will give the stock market more ammunition in the short term, he said, provided that the earnings don’t derail the momentum.

Investors already know that third-quarter earnings growth will be at the slowest pace in more than five years. But outside of the financial and homebuilding sectors, there may be expectations for results to beat, particularly in the case of multi-national companies that should benefit from the weak dollar, Mendelsohn said.

Market breadth was mixed. On the New York Stock Exchange, winners and losers were narrowly mixed on volume of 620 million shares. On the Nasdaq, decliners beat advancers four to three on volume of 1.13 billion shares.

Treasury prices fell after the minutes, raising the yield on the benchmark 10-year note to 4.65 percent from 4.64 percent late Friday. Treasury markets were closed Monday for the Columbus Day holiday. Bond prices and yields move in opposite directions.

COMEX gold for December rose $4.40 to settle at $743.10 an ounce.

U.S. light crude oil for November delivery rose $1.24 to settle at $80.26 a barrel on the New York Mercantile Exchange after slumping $2.20 in the previous session.

In currency trading, the dollar rose against the euro and yen.

 

October 10 2007: 12:48 PM EDT

NEW YORK (CNNMoney.com) — The Dow dropped about 100 points Wednesday afternoon, one session after ending at an all-time high, as investors eyed component Alcoa’s earnings miss and a big setback for Boeing.

News that auto workers went on strike against Chrysler added to the session’s weakness.

October 10 2007: 12:48 PM EDT

NEW YORK (CNNMoney.com) — The Dow dropped about 100 points Wednesday afternoon, one session after ending at an all-time high, as investors eyed component Alcoa’s earnings miss and a big setback for Boeing.

News that auto workers went on strike against Chrysler added to the session’s weakness.

 

Market breadth was mixed. On the New York Stock Exchange, losers beat winners three to two on volume of 340 million shares. On the Nasdaq, decliners beat advancers 4 to 3 on volume of 640 million shares.

Treasury prices fell, raising the yield on the benchmark 10-year note to 4.64 percent from 4.64 percent late Tuesday. Bond prices and yields move in opposite directions.

COMEX gold for December rose $6.60 to $749.70 an ounce.

U.S. light crude oil for November delivery rose 12 cents to $80.38 a barrel on the New York Mercantile Exchange.

 

 

October 11 2007: 5:58 PM EDT  (Day of the High)

NEW YORK (CNNMoney.com) — Technology led a broader stock market selloff Thursday, with investors backing off after pushing the Dow and S&P 500 to record intra-day highs earlier in the session.

The Dow Jones industrial average (Charts) lost around 0.5 percent. Earlier, the Dow had risen more than 100 points and hit an all-time intra-day high of 14,198.02.

 

Much at stake for Ford

Stocks rallied through the early afternoon after Wal-Mart’s improved earnings forecast tempered some worries about consumer spending and a spike in oil prices lifted big oil stocks.

But the advance hit a roadblock in the afternoon, with investors backing off shortly after the major gauges hit the records, said Tom Schrader, managing director of U.S. equity trading at Legg Mason.

“We were having a pretty good day, until they [investors] decided we’ve gotten too extended on the upside,” Schrader said. “So they’re hitting the semis and some of the other techs pretty hard in the afternoon.”

Afternoon comments about inflation from a European Central Bank Council member reminded U.S. investors about that still-present threat, ahead of Friday’s report on wholesale pricing pressure.

Due before the start of trade Friday, the Producer Price Index (PPI) is expected to have risen 0.5 percent in the month after falling 1.4 percent in the previous month. The so-called “core” PPI, which strips out food and energy prices, is expected to have risen 0.2 percent, as it did in the previous month.

Business inventories and consumer sentiment reports are also due later in the session Friday.

 

Wal-Mart also reported tepid September sales growth, but investors sent the stock 3.5 percent higher anyway on bets that it means consumer spending will hold up OK, despite the housing market collapse.

 

Currently, earnings are expected to have grown just 1.4 percent in the third quarter, according to tracking firm Thomson Financial, the worst quarterly growth figure in more than five years.

The poor showing is partly due to tough comparisons with the same quarter a year ago, in which earnings growth was strong. Yet, beyond the comparisons, earnings growth is set to suffer amid the fallout in the mortgage market.

So far, investors have taken in stride more than $20 billion in writedowns from the financial sector, due to the subprime crisis. And that could be an indication of how stock investors may respond to any weak earnings being reported over the next few weeks.

“The market knows that most of the third-quarter earnings retrenchment is due to financials and energy, and both groups are expected to expand earnings in the fourth quarter,” said Jack Ablin, chief investment officer at Harris Private Bank.

He said that on a broader level, investors are probably going to be willing to look past the third-quarter earnings because they expect an overall recovery in the fourth quarter. Currently, Thomson is looking for earnings growth of at least 10 percent in the fourth quarter.

Red hot global currencies

In economic news, the trade deficit fell to a 7-month low, thanks to strong sales overseas and the impact of the weak dollar.

The number of Americans filing new claims for unemployment fell last week, versus expectations for the number to hold steady. The four-week moving average, considered to be a more reliable number, also dropped.

Another report showed that the number of mortgage delinquencies fell in September after hitting a 32-month high in August.

 

October 12 2007: 12:34 PM EDT

Big banks on the chopping block

Technology led a broader selloff Thursday, with investors backtracking after pushing the major gauges to multi-year highs in the morning. But after that breather, investors were back in rally mode Friday, thanks to a mix of positive factors.

Oracle’s bid for BEA, McDonald’s improved earnings forecast and GE’s strong quarterly results highlighted the session’s positive corporate news.

Investors also welcomed a strong read on retail sales and a mild inflation report. Although on the downside, those reports may have also dampened hopes that the Federal Reserve will cut interest rates at its next policy meeting that ends Oct. 31, as was evident by rising Treasury bond yields.

However, concerns that the economy might be at risk of perking up too much were tempered by weaker-than-expected reports on business inventories and consumer sentiment.

The reports seemed to further recent hopes that the economy is in the sweet spot between growth that is strong, but not inflationary. If that proves to be true, that would put the economy in a place not so different from where it was before the housing market slump and credit crisis raised fears of recession, said Douglas Roberts, managing principal at Channel Capital Management.

“The global central banks have the credit crisis under control, the overhead resistance from inflation is waning and recession fears are starting to recede quite a bit,” Roberts said. “So it’s a very positive environment for stocks.”

In other news, U.S. light crude oil for November hit a record trading high of $83.95 a barrel on the New York Mercantile Exchange.

 

Retail sales jumped 0.6 percent in September, double what they rose in the previous month and above forecasts. Sales excluding autos rose 0.4 percent, after falling 0.4 percent in the previous month. Economists surveyed by Briefing.com thought sales would rise 0.3 percent, on average.

The Producer Price Index (PPI) rose 1.1 percent in September after falling 1.4 percent in the previous month, topping estimates. The so-called “core” PPI, which strips out food and energy prices, rose 0.1 percent, short of forecasts. Core PPI rose 0.2 percent last month.

Reports on consumer sentiment and business inventories, released in the mid-morning, were both weaker than expected.

The University of Michigan’s consumer sentiment index fell to 82.0 in early October from 83.4 at the end of September. Economists, on average, thought it would rise to 84.0.

Inventories rose 0.1 percent in August after rising 0.5 percent in July. Economists thought inventories rose rise 0.3 percent.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 4.69 percent from 4.63 percent late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar gained versus the yen and euro.

COMEX gold for December delivery fell $2.80 to $753.90 an ounce.

In global trade, Asian markets ended lower and European markets fell in afternoon trading.

 

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