November 18, 2008, 9:31 am
Stocks Seen Falling Again As Mood Darkens Further
S&P EYES RETEST OF LAST WEEK’S TEST OF OCTOBER LOW
Sentiment still stinks on the Street of Dreams. Investors have no confidence in rallies, which have had the shelf life of ice cream left out on the counter on a summer afternoon. Last week’s heroic one-day pirouette, in which the S&P 500 leapt over 10% - from the intraday lows to the intraday highs - has looked increasingly like what it probably was: a bear trap or a sucker’s rally, depending on the vernacular one chooses to employ.
It’s certainly not out of the question that major indexes could retest the October lows, as happened last week, once again. The S&P 500, headed some 15 to 20 points lower on the open Tuesday, would only need about 35 points all told to visit last week’s intraday lows. Last week’s test was widely heralded as a success. If this one would fail, the downside exposure would be significant.
Economic data released ahead of the trading session certainly didn’t alleviate the gloom on Wall Street. According to the government, producer prices plunged 2.8% last month, the steepest decline on record, and well ahead of economists’ projections of a 1.8% retreat. The sharp decline in demand for energy and other basic materials caused the historic slump, though so-called core prices fell just 0.4% for the month, suggesting that the decline in energy prices haven’t fully wormed their way into the economic complex. Amid this additional evidence of global recessionary conditions, risk aversion has racheted back up, sending the dollar higher.
Once again, the focus in the session, at least from an investment standpoint, is likely to alight on Washington, D.C., as Treasury Secretary Paulson, Fed Chairman Bernanke and FDIC chief Sheila Bair make a scheduled appearance to talk with the House Financial Services Committee regarding the latest with the TARP plan. Paulson’s controversial decision earlier this month to eschew buying trouble assets altogether is likely to be one of the key questions that legislators will ask. The reversal on the objective of the TARP plan effectively served to quash what had been one of the fundamental improvements in the capital markets, the decline in interbank lending rates. LIBOR rates ticked higher again for three consecutive days after Paulson revealed the changes, although the three-month dollar LIBOR has eased modestly again Tuesday.
Meanwhile, automotive industry executives are slated to travel to the Senate to appear before the Senate Banking Committee in an attempt to further their request for federal funds to stave off failure.
HOME DEPOT ON THE HOPE FOR A RETAIL RECOVERY
Home-improvement product retailers set the early pace for the decline in consumer spending at merchants offering discretionary goods and services. Now Wall Street is apparently hoping these same retailers can help lead the recovery. Shares of Home Depot (HD) have ticked up about 5% in Tuesday’s early trading, on hope that a turnaround in their business model could be in the offing, despite some downbeat forecasts on sales expectations.
The home-improvement products retailer said that it expected the uncertain sales environment to continue into the first half of next year. It reported third-quarter results that showed the number of transactions at its locations and the average ticket price both dropped in the third quarter, although - thanks to improvements in margins - its earning came in ahead of forecasts, though still down 31% on a year-over-year basis. Analysts projected that the retailer’s recovery won’t arrive in the final frame of the 2008 fiscal year, as earnings are expected to trail forecasts. But it’s one of those ”looking out over the valley” to see what starts first up the hill to recovery. |
