Stocks fell for the third consecutive day on Friday, as investors scrambled to safety. The Wall Street Journal described it as a “sign of extreme aversion to risk,” as potential equity buyers settled instead for U.S. bonds with the rate on three-month Treasury bills at 0.02%.
Gold futures closed higher for the sixth consecutive day and gained 2.7% for the week. But the Nasdaq (NASD) fell in response to Dell’s (DELL) 10% decline after the company missed earnings estimates of 28 cents, reporting only 23 cents for last quarter.
In economic news, initial jobless claims came in at 505,000, which met expectations. And new housing starts fell 10.6% to 592,000. Analysts were expecting 600,000.
But there was one piece of good economic news: October retail sales rose 1.4%, which topped an estimate of 0.9%.
At the close, the Dow Jones Industrial Average (DJI) was off 14 points to 10,318, the S&P 500 (SPX) fell 4 points to 1,091, and the Nasdaq was down 11 points to 2,146.
On the NYSE, 1.1 billion shares traded with decliners ahead of advancers by about 3 to 2. On the Nasdaq, volume totaled 765 million shares with decliners ahead by 7 to 6.
For the week, the Dow gained 0.5%, the S&P 500 fell 0.2%, and the Nasdaq was down 1%.
December crude oil fell 74 cents closing at $76.72 a barrel, and the Energy Select Sector SPDR (XLE) fell 53 cents to $56.60.
December gold rose $4.90 to $1,146.80 despite a stronger U.S. dollar. And the PHLX Gold/Silver Sector Index (XAU) closed at $184.28, down $1.57.
What the Markets Are Saying
After rising 64% from its March lows in just 176 trading days, the S&P 500, along with its index cousins, has seemingly run into a brick wall. Or is it just a “wall of worry”?
Whatever it is, the ride up has been one of the most arduous that I can recall. At virtually every step higher, the bears have put up such an enormous attack — directed at those who would own equities as the world teetered on a precipice of disaster — that even the most ardent bull had to question his sanity for owning any stock at all.
And last week the bears were at it again, this time claiming that since this has been the greatest run up since 1933, then we must be in such rare territory that a collapse is almost certain.
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That sort of emotional “sky-is-falling” reaction to a very successful eight months is illogical, since the market’s success most likely means that the economy could turn positive in the first half of 2010.
Aren’t some of these folks the same ones that preached that the stock market “discounts the future” and is the most accurate indicator of future economic conditions?
Question: If the market has predictive value, then why have some of the indices, like the Russell 2000 (RUT) or the S&P SmallCap 600 Index (SML), been falling recently and not following the pattern of the Dow, the S&P 500, or even the Nasdaq — all of which broke into new highs this week while these technology-heavy indices formed bearish-like patterns?
The answer may be that pure reluctance on the part of fund managers to take risk this late in the year — especially in a year in which tech stocks and other volatile shares have provided positive returns.
Fund managers are paid year-end bonuses based on performance, and they don’t see a reason to take a risk this late in the year when they could cash in their gains, invest in government bonds and blue chips and, thus, lock in their bonuses.
I’ll talk more about this later this week since this institutional timidity could present us with some outstanding investment opportunities. Stay tuned and raise some cash; when the opportunities arise, we will want to act decisively.
Today’s Trading Landscape
Earnings to be reported before the open include: 51job, BJ Services, Campbell Soup, LDK Solar, Tech Data, Tyson Foods and Valspar.
Earnings to be reported after the close: Analog Devices, Atwood Oceanics, Citi Trends, Dycom, Focus Media Holding Ltd., Hewlett-Packard, Nuance Communications and Vimicro.
Economic report due: existing home sales (the consensus expects 5.7 million).
Late news: This morning, U.S. business economists raised 2010 growth estimates to +3.2% versus -.02 for 2009, with a modest rise in employment, and predicted that the Fed will raise rates 0.25% in Q2.
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