Discussion in 'Trading' started by truetraderone, Jun 10, 2007.
With all the recent volatilility, are we headed lower?
I hope so and pray that the bulls don't recoup all the losses from last week too soon. Personally don't want to see record highs for a long time. The sooner we get out of the 13k range, the better. I think its gonna be a choppy up and down volatile market for the rest of June. (hopefully more to the downside). I just want to see CURBS IN...lol
Smart money will be selling off followed by scared retail investors. Get those baby boomers cashing in their retirement funds before they witness their nestegg dwindle off. Throw in some higher interest rates somewhere else, maybe get ours up to a fed rate of 6% surprising everyone if Ben can grow some balls.
Get some market uncertainty and fear, throw Cramer in jail, throw in a big global geo-political problem and we have a nice recipe for disaster. Mark October 17th, 2007 for a crash. Man, I hate credit bubbles.
Okay, I'm talking out of my ass, the DOW will continue its onward and upward ridiculous run, people will be maxing out margin accounts and buying market tops with the notion of buying high, selling higher eventually to get burned when they least expect it.
Hehe, "hope and pray". These two will not help you become a good trader.
What about my voodoo bull and bear dolls? I'll be poking the bull in the eye tomorrow.
Stock Rally May Fizzle as Bond Yields Rise on Fed Rate Concerns
By Eric Martin
June 11 (Bloomberg) -- The best may be over for the 2007 U.S. stock market rally.
Gains in the Standard & Poor's 500 Index will slow in the second half of the year amid rising concern that the Federal Reserve will raise interest rates, investors said.
``The rate expectation game has changed, and it has been quite a big adjustment,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $192 billion. Stocks ``don't resume the upward march this week or next. It's too soon for the market to suddenly brush this off.''
Government reports this week may show higher consumer prices and a jump in retail sales reflecting record costs for gasoline. Signs of faster economic growth and inflation drove 10-year Treasury yields to the highest in five years, halting a rally that lifted the Standard & Poor's 500 Index to a record.
The benchmark for American equity fell 1.9 percent last week, reducing this year's gains to 6.3 percent. That's still within 3 percent of the year-end level predicted in December by Wall Street strategists tracked by Bloomberg and 5 percent below their current average.
The S&P 500 closed at 1507.67. The Dow Jones Industrial Average retreated 1.8 percent to 13,424.39, while the Nasdaq Composite Index fell 1.5 percent to 2573.54.
Utilities in the S&P 500 dropped the most, losing 5.4 percent, the steepest in 4 1/2 years. The group's average dividend yield of 3.04 percent is the highest among the S&P 500's 10 industries. Chicago-based Exelon Corp., the biggest U.S. utility by market value, lost 7.8 percent to $70.66. Constellation Energy Group, based in Baltimore, dropped 7.2 percent to $83.92.
The drop in shares mirrored bond losses, which drove the yield on the benchmark 10-year Treasury note up 15 basis points to 5.10 percent. The yield reached 5.25 percent on June 8, the highest since May 2002.
The odds of a quarter-point increase in the Federal Reserve's benchmark interest rate rose to 44 percent last week, options on the fed funds rate showed. They were zero a month earlier.
Reports this week may show economic growth is fueling inflation. The Labor Department will say June 15 that consumer prices rose 0.6 percent in May after a 0.4 percent gain in April, according to a Bloomberg survey of economists. Retail sales may rise 0.7 percent in May after falling a month earlier, boosted by energy prices.
Oil touched a nine-month high last week, while regular gasoline was $3.22 a gallon on May 23, the highest pump price ever.
`Negative for Stocks'
``It certainly doesn't help that oil prices are going up,'' said Neil Wolfson, who oversees $32 billion as president of Wilmington Trust Investment Management in New York. ``Rising inflation, all else being equal, is a negative factor.''
Higher bond yields may lower corporate profits, make takeovers more expensive and reduce the appeal of dividends.
``As long as rates go up, that's going to be negative for stocks,'' said Jack Ablin, who oversees $52 billion as chief investment officer at Harris Private Bank in Chicago. ``It's astounding to me that yields moved as quickly as they did.''
Stocks ended a six-day advance June 5 after Fed Chairman Ben S. Bernanke said core inflation ``remains somewhat elevated.'' The Labor Department said a day later that first- quarter labor costs rose three times the rate first estimated.
``We still have a ways to go before we get to the level of inflation that I'm comfortable with on a longer-term basis,'' Federal Reserve Bank of Chicago President Michael Moskow said in a June 8 interview on CNBC. ``Inflation is the predominant risk that I see in the economy.''
Close to Target
The five-week slide in bonds has made them cheaper relative to stocks. Estimated profits at companies in the S&P 500 represent a yield of 6.22 percent of share prices, or 1.12 percentage points more than 10-year Treasuries yield. The advantage is down from 1.88 percentage points in the first quarter, the biggest in 20 years.
This year's rally in stocks has also brought the S&P 500 close to the level predicted at the beginning of the year by Wall Street strategists. A Bloomberg survey on Jan. 2 showed an average estimate for the S&P 500 of 1550 by the end of 2007.
The benchmark closed within 11 points of that on June 4 before dropping the next three days. Strategists have revised their forecasts higher since the start of the year and the average estimate is now 1584, or 5 percent above the last close.
Thomas McManus, chief investment strategist at the brokerage unit of Bank of America Securities in New York, said rising bond yields may limit further advances.
``Stocks could adjust a little bit more forcibly than we've seen so far,'' McManus said. He has a 12-month forecast of 1550 for the S&P 500.
The accelerating economy may boost corporate earnings and lift U.S. equities, said James Paulsen, who helps oversee $175 billion as chief investment strategist at Wells Capital Management in Minneapolis.
``The catalyst to this sell-off was a realization that the economy is growing far better than they thought,'' said Paulsen, who expects the S&P 500 to climb to 1650 by year end. ``Ultimately, what's bad about that?''
If stocks do rise in coming months, the gains won't be as steep as they were in the first five months of the year, according to Wolfson of Wilmington Trust.
``We're expecting the stock market to rally, but not nearly what it has rallied,'' Wolfson said. ``Rising rates are typically not good for stocks. They make bonds relatively more attractive and weigh on valuation levels.''
To contact the reporter on this story: Eric Martin in New York at firstname.lastname@example.org
Last Updated: June 10, 2007 19:07 EDT
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