Doom and Gloom in the Markets (Again)

Here’s a question or two for you to start this fine Tuesday morning… How many of you wanted to throw a stapler through your computer screen or T.V. at some point yesterday? How many of you have had it with the 2% moves in the markets that take less than 5 minutes to complete? How many of you have heard quite enough out of Europe? How many of you would like to have a “chat” with your elected representatives in Washington? Oh, and how many of you are convinced that the sky may actually be falling (again)?

I don’t know about you, but my hand shot up in response to each and every one of the above queries. With the S&P 500 having given up 6.5% in the last 10 days, I will admit that I had to put my stapler inside my desk drawer and away from temptation yesterday. I will also hone up to an eye-roll here and there regarding the latest headlines out of Europe and Washington, as well as the rating agencies’ newfound conscience. And yes, I did tell a colleague yesterday that it might be time to find the helmets again; you know, just in case the sky is actually falling this time.

To be sure, there was little to be positive about yesterday. The charts are toast. The news is abysmal. France is next. The Chinese are worried. Washington is a joke. Germany doesn’t want to play nice anymore. The ECB is just saying no. And even Warren Buffett says the Eurozone has issues that might be tough to fix.

One of my colleagues, who happened to have a short position on, called yesterday morning to not-so subtly remind me that the much ballyhooed breakout was now officially just another fakeout. He also suggested that anyone dumb enough to be optimistic or could even consider any upside potential in the stock market ought to have their heads examined. His tip for me was to “go get in the game with some SPXU and VXX – after all, things are gonna get ugly and you don’t want to miss out.”

I also received an email yesterday informing me in no uncertain terms that with 1220 now “history,” the “spooz” was going right back to 1100 – it was only a matter of time. And then right about the time I decided that I could probably fit under my desk and still see the T.V. in my office – yes, even with my helmet on – it hit me; things might be getting just a wee bit negative out there.

In short, gone are any and all thoughts of a new bull market (never mind that Ned Davis Research says the chances are high that a cyclical bull has begun). Gone is the optimism that the powers-that-be across the pond will be able to stop rates from continuing to rise. And gone is any hope for the traditional year-end rally. Nope, all anybody could talk about yesterday was the doom and gloom that has become pervasive in this market.

My son asked me late in the day if there was anything to be optimistic about. And, he added, “The LEI and existing home sales numbers don’t count.” After noodling on the question for a moment, I came up with one thought worth sharing. I opined that while a 300 point decline certainly was painful to endure, we should keep in mind that the historical seasonality around the Thanksgiving holiday is usually pretty positive.

In fact, history shows that the two days prior to and the Friday after Thanksgiving sport bullish tendencies with the S&P showing gains of about +0.90% during the three-day period. In addition, the day before Thanksgiving is up nearly 80% of the time while Black Friday has gained ground 76% of the time.

As any good analyst would do, my son then asked what we should expect if the seasonality doesn’t hold this year. To which I replied, “Well, then maybe the sky is falling after all.”

Hmmm… I wonder where I put that helmet.

Turning to this morning… Soaring rates in Spain and a weaker than expected GDP revision has turned the early trade from green to red this morning.

On the Economic Front… The government’s first revision to the nation’s third quarter GDP shows the economy grew at a rate of +2.0% during the July-September period. This was well below the estimates for a growth rate of +2.4%, the rate of +2.5% from the advance report, but above the second quarter’s growth rate of +1.3%. On the inflation front, the Price Deflator came in at +2.5% vs. expectations for +2.5% and the last report’s +2.5%.

We will also get the minutes from the latest FOMC meeting this afternoon.

David Moenning
Editor:  The Daily Decision