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| Last Week in the Markets: A Look Back to Help Assess What Might Be Ahead (#11) - Oct. 11, 2005 |
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Foreword
"Last Week in the Markets..." is an examination of the week that was in the financial markets, in an effort to help assess the prospects for the week(s) that will be.
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Summary
This very abbreviated edition of "Last Week..." is meant primarily to facilitate the next, more detailed edition (#12), which I intend to publish over the coming weekend.
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* The damage to the stock market last week was anything but insignificant. The GRA seven-measure tracking group fell an average 2.8%, registering a median decline of a very similar 2.7%.
* Among tracking group components, last week's losses ran in a range of 2.6% for the DJIA and the NYSE Composite, to 3.5% for the Russell 2000.
* Through last Friday (10/7), the tracking group had a price-only average decline of 1.4% for 2005 to date (median decline of 1.3%). Only one of the group's components remained in positive territory: the NYSE Composite was up 2.6%. The remaining six measures showed year-to-date losses running in a range of 0.1% for the Wilshire 5000, to 4.6% for the DJIA.
* Yesterday's additional price weakness was a little surprising. (1) The equity market entered the current week meaningfully short-term oversold. (2) More important, though, is that thinned out trading sessions, like Columbus Day, are often the bulls' playground. Not so yesterday, however!
* Today's session has begun on a high note, with the DJIA currently up about 56 points (as of 10:30 AM ET). Were today to end badly, I suspect it would be quite incrementally disheartening for the bullish camp.
* Weeks, even days, showing sharp declines always need a reason (excuse), mainly so venues like CNBC and Bloomberg can trivialize them, thereby assuring investors the reason(s) are not important ones. The reason (excuse) used for last week was the abundance of Federal Reserve officials giving speeches in which inflation which cited as a growing concern. In turn, this put downward pressure on stock prices, because people assumed this was a portent of additional Fed rate increases over the relatively near term.
* There remain two scheduled meetings of the Federal Open Market Committee this year, on 11/1 and 12/13. (There is no scheduled meeting this month.) As of last Friday, the federal funds futures contract for December closed at a yield of 4.12%, indicating that market's assumption there would be at least one more 25 basis-point hike in the Federal Funds Rate during 2005, and perhaps even a second.
* The first 2006 FOMC meeting is scheduled for 1/31. As of last Friday, the February fed funds futures contract closed at a yield of 4.36%.
* The President has seen better times as it relates to how he is viewed by liberals and conservatives alike. But it is the growing discontent of the latter group that affects George Bush a great deal, since it is conservative voters who assured his second term. I believe there is little question that this widening schism with the "base" has begun to find its way into the behavior of the US financial markets. In the case of the stock market, the behavior is negative.
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