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Will U.S. Investors Continue To Shrug Off Flow Of Bad News?

8 December 2008 - Markets - Editor

Friday’s U.S. stock market gains fueled hopes that the market may finally be bottoming out. While analysts are divided as to whether this is so, it certainly appears that investors are becoming somewhat accustomed to bad news and are trading anyway. At one point in Friday’s trading session the Dow was down 257 points, but rallied and ended the session with a gain of 3.1 percent, or 259 points to 8,635. The S&P 500 rose 3.7 percent, while the Nasdaq added 4.4 percent. The five-day decline for the Dow, S&P 500 and the Nasdaq was 2.2 percent, 2.2 percent and 1.8 percent respectively.

Friday’s early morning decline is mainly attributed to the report by the Labor Department that non-farm payrolls dropped 533,000 jobs in the month of November, but markets seemed to absorb the news, deal with it, and recover later in the day. Analysts agree that the fact U.S. markets have seen gains over eight of the last ten sessions despite the flood of dismal economic news, while encouraging, may not indicate the bottoming out of the market and it is highly improbable that the market would be entering bull territory any time soon.

The coming week is expected to test the upward trend of the market. While it is becoming more likely that the Big Three will receive some form of assistance, at least to tide them over until the Obama administration finds its feet, it appears to be the only news on the horizon that may be considered positive. It is anticipated that upcoming reports this week will all be gloomy. On Tuesday the National Association of Realtors will give its latest reading on the housing market when it releases its October pending home sales index. Wednesday will see the release of October figures on wholesale inventory and sales. Thursday the government will be releasing its November import and export price indexes, as well as the October trade balance. The Producer Price Index for November will be released on Friday, with experts predicting around a 3.0 percent fall primarily due to the sliding price of oil. Also due this week is a preliminary consumer sentiment reading for December from the University of Michigan. Retailers experienced a strong start to the holiday shopping season with its Black Friday specials the day after Thanksgiving, but few expect this initial enthusiasm to be sustained up until Christmas.

Senior technical strategist at Schaeffer’s Investment Research noted that although the 16% stock rally since the November low is encouraging, investors are likely to sell into year-end, with both professionals and individuals looking to cash out. Investors have cashed out of equity mutual funds in 16 of the last 18 weeks, drawing around $12 billion out of equity mutual funds last week.

Nevertheless, optimists see the fact that during the past week the market has shrugged off bad news, as an indication that investors are once again seeing value in U.S. shares, and it just might be that the worst is over.

 


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