@theMarket: Look for a New Low in the Stock Markets
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It was the worst week in six years for world markets. The Dow, NASDAQ and S&P 500 were all down more than 2 percent and if you've been reading this column you know that there is more downside to come. The question is how much more.
We've said the first stop on this down elevator would be somewhere between 1200 and 1180 on the S&P500. Right now we are at 1242. Yet, there's no panic, the volatility index is not much higher than usual and NYSE volume, although higher since Labor Day, is still no where near historical records.
That says to me that there just isn't enough panic and pessimism out there yet to form a convincing bottom. In which case, we could find the S&P dropping further to possibly 1100 which would not make anyone happy.
The bears are taking very few prisoners in this battle. Even the classic defensive sectors such as utilities, consumer durables and healthcare are getting smacked. Overseas markets are faring no better with emerging markets leading the declines.
Commodities, which provided a safe haven to investors during the first half of the year, have also lost their luster. Oil continues to fall despite the Labor Day hurricane as investors worry that a global economic slowdown will mean less demand for energy.
As I feared, the Wall Street heavyweights returned from vacation sized up the anemic August stock market recovery and decided it was time to get out. Hedge funds are also taking it down a notch. They call it "de-leveraging"; I call it selling. Big mutual fund companies are also seeing redemptions as retail investors, tired of the volatility and deluged with a steady stream of bad economic numbers, have decided to cash in.
"So where are the buyers?" one gloomy client asked, as he himself sold his more aggressive funds.
"They've been watching the conventions on television, listening to the political speak from both sides and have come away less then impressed," I quipped, with more than a modicum of cynicism.
The truth is neither presidential candidate can do much of anything in the short-term to stem the losses in either the stock market or the economy (for more on this see this Thursday's column). Even our sitting-duck-of-a-President Bush's multibillion dollar, fast-track stimulus package barely budged either the averages or the downward trend of the economy.
Speaking of which, the unemployment rate hit 6.1 percent this week, up from 5.7 percent last month. That's not good because the economy usually does not lose jobs in the summertime.
The Federal Reserve also issued its "Beige Book" report this week. This is a survey of economic conditions from the 12 regional Federal Reserve Banks released every six weeks. It indicated consumer spending, the engine of the American economy, continued to weaken throughout the summer. Together with the lousy employment number, this does not bode well for this quarter's economic numbers.
So is there any good news? Well, gas prices are down and I suspect food prices might at least stabilize over the coming months. If oil continues lower, as I believe it will, (target price: $88 to $90 a barrel) this winter's fuel bill may be lower than we think. Then there is the impact of all the interest rate cuts by the Fed over the last year.
It usually takes at least 12 months for those cuts to start impacting the economy. The first rate cut was in September of 2007 so we just might see an up tick in the economic numbers soon. That may be more of a prayer and a hope then an economic forecast but I was born an optimist.
Bill Schmick is a licensed investment adviser representative and portfolio strategist with Berkshire-based Dion Money Management, managing over $800 million for middle-class Americans from coast to coast. Direct your inquiries to Bill at 1-877-850-7942, Ext. 146 (toll free) or wschmick@dionmm.com. You can also visit www.afewdollarsmore.com for more of Bill’s insight.
