Daily Market Reports | Dec 02 2008
By Greg Peel
The Dow fell 679 points or 7.7% while the S&P and Nasdaq both fell 8.9%.
Just when you thought it was looking safe to go back in the water reality has struck again. This is exactly what happens in bear markets. It is bear markets that provide the sharpest up-moves, and the last week and a half saw a typical bear market rally. Bear markets rallies are also typically punctuated by very sharp reversals, and last night saw exactly one of those. Wall Street gave back half its gains.
The Dow fell about 400 points in the first hour and then hung there right up to the last hour when it did the typical thing and fell another 300 points. After the best rally in years, a down-day was always on the cards at some point, and the panic was always going to set in in the last hour. It was not just about profit-taking, it was about funds that have not been sold to date but looking for a selling opportunity, and rushing to do so when the dam broke once more.
Everything was down.
There was early anticipation of data from Black Friday retail sales. The results were spurious – the National Retail Federation announced Black Friday sales were up 7.2% on last year in US dollar terms but another poll found some 70% of shoppers bought only deeply discounted stock. The implication thus is a 7.2% increase does not mean profits.
While consumer spending is one side of the equation, wholesale production is the other, and yesterday and last night saw a round of very weak manufacturing data across the globe. Australia’s purchasing managers’ index tanked, China’s fell to a record low, and similar results were announced in Hong Kong, South Korea and India. Then we moved to Europe, where the Eurozone showed a significant drop as did Russia, and the UK also marked a record low. The US November ISM manufacturing index then came out at 36.2% – down from 38.9% in October and below consensus estimates of 37%.
If ever those sellers waiting on the sidelines were looking for a trigger, and wondering anxiously how long the bear market rally would last, this was it.
The figures were also enough to trigger more selling in commodities, and weakness across the globe was enough to see the US dollar index rise against major currencies. That’s a double-whammy for commodity prices. Throw in the sudden re-emergence of panic selling to raise cash, and the effect is even more dramatic.
Oil fell US$5.15 to US$49.28/bbl.
Gold has enjoyed a resurgence of late, but when sellers need to raise cash they don’t care what they sell. Gold fell US$48.60 to US$769.30/oz.
Base metals came off relatively lightly, only falling 1-2.5% each.
The usual “flight to safety” into US government paper was exacerbated last night by comments made by Fed chairman Ben Bernanke. He suggested that while there was scope to lower the Fed funds rate even further than its current 1.0%, the effect of so doing would likely be minimal. Instead, he suggested the Fed could buy US Treasuries or agency (Fannie/Freddie) bonds. These comments sparked a rush that sent yields across the curve tumbling.
The Aussie dollar took another hit, dropping over a cent to US$0.6415 since Friday.
The SPI Overnight fell 170 points or 4.6%.
Well – easy come, easy go. While there is no guarantee this week won’t bring more selling on Wall Street, those looking for a Christmas rally can at least take heart that falls such as last night’s are part and parcel of any bear market rally. One could ask: What has changed since last week? The global economy is weak? Didn’t we know that?
The question simply remains: How weak, and for how long, and just how low must prices go before such weakness is more than priced in?
