Financial Lead the Way, Down

It looks like the whole financial sector has a problem. The sector was down about 5.5% today with commercial banks down over 6%. Citi was off about 24% and BofA was off about 8% as it might need more government help as it tries to swallow Merrill. Tomorrow JP Morgan is reporting its 4th quarter earnings and it won't be pretty. None of this should be a shock but investors are acting quite surprised.

It was a weak stock market throughout the day as the DOW closed down a little under 3% while the S&P was off 3.35%. It was hard to find many stocks that were up today. In fact, out of 1841 stocks on the NYSE only 109 rose and all the DOW stocks were down. The technicals may have been bad today but tomorrow could be worse.

After the close, Steve Jobs announced that he is taking a leave of absence from Apple as his medical condition is more serious than he said last week. The stock dropped about 9.5% on the day and is right on top of its year low. We have written about our concerns with owning Apple stock but it was related to a possible slowing of their business. Should Mr. Jobs' absence be followed up with weaker earnings than expected, the stock will move a lot lower.

As for tomorrow, the negative news from Apple and BofA after the close will lead the market down. Of course, weakness in Asia tonight won't help either. Most Asian markets are off about 5% so far.

The economic weakness is being translated to the commodity markets as gold, copper, oil, natural gas, and aluminum continued their declines today. The deflationary environment we are in is likely spooking commodity traders. Fear is rising again as the VIX is close to 50. Expect more volatility in stocks until we get through earnings season. At that point all the bad news may be out.

The United States had its credit rating affirmed by S&P but there was some concern expressed. Greece on the other hand wasn't so lucky. We would expect other country downgrades in this environment which should keep global fear at a peak. These are treacherous times and caution is important. Make sure you have plenty of liquidity as the markets seem to want to head lower in the short-term. The bottoming process isn't over but new opportunities are around the corner. If you missed some buying opportunities on October 10th or November 21st, stay tuned. The day with some new lows is probably within a week or two of occurring again.