Following a worse-than-expected jobs report on Friday, stocks opened lower and stayed down for most of the day. But a late bargain-hunting spree enabled the indices to erase much of the early losses, and by the bell, most stocks had overcome the shaky start.
The jobs report showed a loss of 131,000 non-farm jobs in July versus an expected drop of 60,000. But much of the loss was due to the expiration of temporary government jobs with census workers taking the biggest hit, so the overall impact of the losses was not as bad as first thought. Nevertheless, the private sector’s jobs gains came short of expectations.
For most of the session, investors scurried for cover, and the U.S. Treasury 10-year note yield fell to 2.826% — its lowest in a year. Consumer spending, which accounts for 70% of economic activity, is also a concern to investors. And that worry was heightened on Friday, when the Federal Reserve said that outstanding consumer credit fell 0.7% in June, and the national savings rate rose to 6.4% from 6.3% in May.
Despite Friday’s dismal reports, the Dow Jones Industrial Average rose 1.8% last week. Most of the gains were made on Monday when a handful of earnings beat estimates and better-than-expected factory orders attracted buyers. On Friday, Kraft Foods Inc. (NYSE: KFT) reported a 13% jump in Q2 profits, and the stock rose 2.4%.
This week, Goldman Sachs Group, Inc. (NYSE: GS) economists said that there is a chance that the Fed could apply additional stimulus. But doing that might be interpreted as a tacit admission that prior actions were not strong enough and that the economy is worse than it seems.
The U.S. dollar hit a low for the year versus the yen and was weak against the euro. The euro closed at $1.3291. After the close, several analysts were quoted as saying that the euro was headed higher.
On Friday, the Dow Jones Industrial Average fell 21 points to 10,653, the S&P 500 lost 4 points, falling to 1,122, and the Nasdaq closed at 2,288, off 5 points.
The NYSE traded 949 million shares with decliners ahead of advancers by the slim margin of 1.16-to-1. The Nasdaq exchanged 545 million shares. Decliners there were ahead by 1.44-to-1.
September delivery crude oil fell $1.31 to $80.70 a barrel. The Energy Select Sector SPDR (NYSE: XLE) fell 68 cents to $55.63.
December gold rose $6 to settle at $1,205.30 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 1.69 points to 175.49.
What the Markets Are Saying
The focus on Friday was the S&P 500, and for much of the day it looked like that key index was producing the long-awaited signal that would tell us of its immediate direction — and that direction appeared to be down. But in the last 45 minutes of trading, bargain hunters in the techs and blue chips almost reversed the market’s direction, and it overcame much of the early loss.
Normally this sort of reversal would be considered a bullish signal. But volume was so light that it was obvious that the big boys had already headed for the beaches and traders controlled the floor. Thus, we are left with a questionable trend and a possible change in policy by key Fed members. In other words, lots of uncertainty.
So how do we stand? Are we in a bull market or a bear market?
The terms “bull” and “bear” were used, but not coined, by Charles Dow in editorials for the Wall Street Journal late in the 19th century. His theory, the Dow Theory, initially used three indices (industrial, rails, utilities) to determine the overall trend of the stock market. Later he revised the theory to include just two indices, industrial and rails, and today because of obvious changes in the technology of the transportation industry, we substitute the transportation index for rails.
Dow’s theory was designed to determine the “general market trend.” And Dow was adamant in his insistence that basic tenets should guide his process:
1. The averages discount everything (except “acts of God”).
2. There are three trends: major (primary), secondary and minor.
3. Primary trends usually last for a year or more and are the broad overall up and down movements of the market. The terms “bull” and “bear” are used to describe primary trends.
4. Secondary (intermediate) trends are the important reactions to interrupt the progress of prices in the primary direction.
5. Minor trends are the brief (rarely three weeks and usually less than six days) that are usually meaningless, but which make up the intermediate trends.
To those who follow the Dow Theory, the terms “bull” and “bear” have specific meaning. But today those meanings have been compromised by many technicians to fit their own market-trend theories. But when you read them in the Daily Market Outlook, you may be confident that they are being used to describe the condition of the market in the terms of the Dow Theory. At times I will compare other techniques to identify various trends and then use the terms “bull” or “bear,” but again, their meaning is confined to Dow’s original intent.
I’ll cover the other basic parts of Dow Theory later this week. We are currently in a bear market with the secondary (intermediate) trend neutral to tending up. The minor trend is up. In order for the bear to turn to bull, the highs of April must be exceeded.
Today’s Trading Landscape
Earnings to be reported before the opening include: Amedisys, American Oriental, Ballantyne Strong, Blount International, Broadwind Energy, China Automotive, China Fire & Security Group, Chindex, Clayton Williams, DISH Network, Ebix, Echostar Holdings, Energy Transfer, Energy Transfer Equity, EW Scripps, Fuel-Tech, GLG Partners, GTX, Harbin Electric, Horsehead Holding, Hospitality Properties, Houston Wire & Cable, HQ Sustainable Maritime Industries, Inergy, ISIS Pharmaceuticals, King Pharmaceuticals, Macerich, Medical Action, Nelnet, NGP Capital Resources, PDC Energy, Progenics Pharmaceuticals, Quicksilver Resources, RadNet, ReneSola, Scripps Networks Interactive, Sterling Construction, Superior Well Services, TravelCenters of America, Tyson Foods, WellCare Group and Wonder Auto Technology.
Earnings to be reported after the close include: American Science & Engineering, Assisted Living Concepts, Bidz.com, Blackboard, BPZ Energy, Carrol’s Restaurant Group, Clean Energy Fuels, Clear Channel Outdoor, Compass Group, Cousins Properties, Ctrip.com, DTS, Emeritus Corp., eResearchTechnology, EV Energy, Gartner, Genco Shipping & Trading, GenMark Diagnostics, Geokinetics, Giant Interactive, Golden Star Resources, Grand Canyon Education, Hawaiian Electric, Healthcare Realty, Himax Technologies, Inter Parfums, MarkWest Energy, MBIA, McDermott, Medcath, Medivation, Mindray Medical, Nuance Communications, Parexel, Pegasystems, Pericom Semiconductor, Qiagen, QuinStreet, Rackspace, Rosetta Resources, Salix Pharmaceuticals, Stifel Financial, Sun Hydraulics, Techtarget, THQ, Time Warner Tcom, Vaalco Energy, ViaSat and Zoltek.
There are no significant economic reports due today.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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