Verizon brought some relief to the market as it reported very good earnings and its stock soared 10%. It looked like it would be enough to propel the rest of the market up but negative news from Loews Corp. and Morgan Stanley shook up the financial sector, again. General Motors is desperately seeking a loan from the government in order to pursue a merger with Chrysler. The concern about job losses in the auto industry will weigh heavily on the economy. A weak auto industry and a weak real estate environment will guarantee a long recession.
The market looked like it might rise for a day but swooned in the last hour as the S&P dropped 3.2% and the DOW slid 2.4%. The markets were also focused on how much the Fed will cut rates and there doesn't seem to be much doubt that they will.
The overseas markets didn't seem to take their cue from the U.S. Foreign markets have been taking a beating on depressed economies and a rising dollar. In fact, the dollar seemed to be rising against every currency except the Yen. The strong Yen helped to put a big damper on the Nikkei but last night the dollar finally rose against the Yen. The result was souring Asian markets. Lower rates in Europe and cheap valuations also became a powerful force to cause a rally in Europe.
Everything seems great again and the U.S. markets appear to be ready for a big rally. The stock market always rises before the economy turns positive but are we ready for that moment yet? You should expect volatility to continue and today happens to be starting with good volatility. Perhaps it is related to a potential cut in rates and strong overseas markets but at the end of the day "It's All About the Economy". The banking system needs to start to lend again, housing needs to bottom out, and corporate bankruptcies need to be flushed out of the system.
There were some positive Tea Leaves again yesterday as new homes sales for the month of September were positive and beat all estimates. Also, a couple of new acquisitons were announced as J&J acquired a wellness firm and CenturyTel bought Embarq, a telephone carrier. These may not be huge acquisitions but it adds to the consolidation we are seeing in the banking industry and it is just another positive event in our pursuit of growth in the economy.
Investors will certainly be confused today, at least this morning, as the market rises but discipline is key. Stay with strong companies and don't chase the rising market.
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