President Obama is ready for action and it looks like his first move was to take the financials out to the woodshed and shoot them. Every major banking institution's stock including Citigroup, Wells Fargo, J.P. Morgan, and BankAmerica were down double digits yesterday. The broad markets also crawled under a rock as the DOW was down 4% and the S&P and NASDAQ were down more than 5%.
The new administration had indicated that the balance of the TARP money was going to focus on helping the small guy and not the big banks. Of course, some plan to stabilize the financial system is necessary but a lack of any details led the market to assume the worst. The markets felt ugly all day but after noon when our new President was sworn in, the volume of the downtrend picked up considerably. All the DOW stocks were down and most of the NYSE stocks followed along.
It is still "All About the Economy". Volatility in the markets resumed its upward trend and fear was everywhere. Stocks won't go to zero but buying opportunities will develop. It is earnings season and we can expect mostly disappointing numbers. Analysts will continue to lower estimates and that should lead us to the bottom of the market. In the past two weeks the rally in the high yield and loan markets has cooled and drifted downward. Perhaps the year-end rally in the credit markets was just short covering but we believe they just ran up too fast. The credit markets will lead the stock market and until they stage a broad rally, the stock market won't.
Perhaps stocks will bounce early this morning but a huge sell-off would probably be better. Markets try to maximize pain and another huge down day might scare enough investors out of the market so we can finish the bottoming process and move onto better times.
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