Market Likely Down Today
September 7th, 2007 by John BrasherStock futures are down this morning before the stock market’s open, signalling losses today in the stock market. S&P 500 futures declined 5.7 points Nasdaq 100 futures declined 11.75 points. Dow industrial futures fell 39 points. This may not signal a triple-digit pullback in the market, but today is extremely unlikely to be anything but another down day, unless news comes out that moves the market.
For those of you playing volatility, today might provide a chance to profitably close bearish positions recently put on, and you might be able to put them on this morning (buy puts, etc.).
Covered call writers: be alert for a chance to close short calls profitably if the underlying stock pulls back with the market.
September 7th, 2007 at 10:23 am
John, how much of this mornings losses do you see coming back up relatively quickly if the Fed announces a rate cut? Is part of the nervousness the market just not knowing how likely a rate cut is?
September 7th, 2007 at 10:54 am
It will come back, maybe even Monday. We are in a period of serious volatility as the correction progresses. These see-saws are not unusual in a major correction. I don’t see the market evening out and getting back to highs until some of the earnings uncertainty is resolved. I don’t know that a rate cut is a good thing - the Fed is really concerned about the inflationary monster lurking about and really not all that interested in the stock market.
September 7th, 2007 at 7:58 pm
Just from the chatter on CNBC and the financial press in general, I think a cut could ease some tensions a bit, warranted or not. As a developer and builder the selfish side of me always likes to see rate cuts.
September 7th, 2007 at 8:57 pm
We’re all selfish and do what is in our perceived best interest, which is why the markets work predictably.
September 8th, 2007 at 8:46 am
Jim Cramer and others in the financial media are spending a lot of time begging for, and talking about, a rate cut. Though it may be totally emotionally based, I think at this point that a cut would increase confidence. It may be rather short lived though as the indicators of an impending bear market are coming. Oil prices have already surged, the number of rising stocks has decreased, and it appears that consumer spending may be slowing. When treasury yields start running up I think the real start of a bearish environment will be upon us.
September 8th, 2007 at 9:02 am
Well, we should be careful what we wish for… consumer confidence seems just fine, so far, since consumer spending has not seriously slowed. If it had, corporate earnings would reflect it. I think a FedFunds rate cut would increase institutional confidence, but like the Fed, doubt it would help that much. Some of the impending problems, like hundreds of billions of ARM rate resets next year, won’t be addressed or helped by a rate cut. I agree that the effect will be short-lived. Bernanke’s dilemma: if a rate cut doesn’t help, what’s left then in his trick bag? And the Fed remains concerned about core inflation (and real inflation).
September 8th, 2007 at 7:11 pm
Consumer confidence, and retail dollars available for discretionary spending haven’t been overly affected by consumers not being able to treat their home like a second job or ATM anymore. A lot of US citizens have come to expect to be able to suck the equity out of their home on a regular basis. In a lot of markets with a return to more average, probably sustainable home appreciation levels, and in other markets with sliding home values due to things such as ARM’s creating an abundance of foreclosures, a lot of that equity that created retail spendable cash isn’t going to be there. A good friend is a partner at a large law firm that does a lot of foreclosure business all over the country. The number of borrowers currently in default, and indicators of impending defaults, are starting to rise extremely quickly. A lot of folks are going to lose their homes, and with the tightened credit situation they won’t be able to purchase another one any time soon. Those of us that tend to be bottom feeders will swoop in and make some money. I already know of some large firms planning to buy a lot of single family residences with plans to rent them out, more than likely to the same type of folks that recently lost a home. I believe it will be another way that the poor will be more beaten down and kept poor, and the wealthy that can capatilize on the downturn will do very well. Over the years I’ve purchased a lot of property from other developers that got themselves into financial binds and had to have a fire sale. Lenders don’t like REO’s, and they really don’t like large numbers of them on the books. The fast selling will only drive prices further down, especially as smaller lenders have to move quickly to dispose of REO’s. Some markets will be just fine, others will really suffer.
BMW announced a 20% increase in sales, and Lexus and MB are expected to announce similar numbers. I think the luxury end of the market as a whole will be fine. What will the Ford’s and GM’s be like though? Will GM be buoyed somewhat by good Cadillac sales? Will stocks like Walmart and Target do well as tradionally higher end middle consumers are forced to shop there? Will any increase there be offset by the poorer of the customers not having as much discretionary income in the future? What about Home Depot, a traditionally recession proof stock as homeowners typically do a lot of remodeling and other home improvement? They have already sold off a bunch of their contractor based biz, and if homes are depreciating, or their isn’t equity to suck out for a second, how excited will homeowners be to improve their properties?
My wife is an economist, and she very accurately called the coming tech downturn in 99, and we made a lot of money selling covered calls on companies like TQNT prior to the slide. There are going to be some real opportunities, PE’s aren’t at all out of wack, and there will no doubt be some good buys, and some great buy/write candidates out there. For those of us able to partake of them, there are some hedge funds poised to make some pretty good returns in the next few years as well. Good luck to everyone. With the help of Callwriter I’m having no problem finding several good buy/write trades each month.