Signs the rally in the Standard & Poor’s 500 Index is about to fizzle

Discussion in 'Wall St. News' started by ByLoSellHi, Jul 1, 2009.


    Banks Falling 23% Since May Foreshadow S&P 500 Slump (Update2)
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    By Lynn Thomasson and Rita Nazareth

    July 1 (Bloomberg) --
    Declines of more than 20 percent in regional banks and homebuilders and the failure of transportation companies to erase their annual loss may be signs the rally in the Standard & Poor’s 500 Index is about to fizzle.

    Smaller lenders in the gauge have lost 23 percent since climbing to a four-month peak on May 8, while builders have tumbled 25 percent from May 4, when they reached the highest level since October. Concern that mortgage rates, credit losses and foreclosures are increasing spurred retreats in the companies forecast to be among the biggest beneficiaries of $12.8 trillion in government stimulus spending.

    Slumps in bank stocks foreshadowed previous declines in the S&P 500 as investors focused on real-estate losses that curbed lending. Regional banks’ 51 percent plunge over 28 days starting Dec. 8 came a month before the S&P 500 began a 28 percent slump to a 12-year low of 676.53. The lenders’ all-time high in February 2007 occurred seven months before the S&P 500’s record.

    “If housing and credit led us into all this, they will have to stabilize,” said Mark Demos, a Minneapolis-based money manager at Fifth Third Asset Management, which oversees $18.7 billion. “There’s a growing concern that they’re not out of the woods. Less bad does not equal good.”

    Speculation government spending will end the first global recession since World War II helped push up the S&P 500 by 15 percent since March 31, the biggest quarterly increase since 1998. Financial shares gained the most among the S&P 500’s 10 industry groups, rising 35 percent. The index rose 0.7 percent to 925.55 at 10:14 a.m. in New York today.

    ‘Government-Induced Rally’

    Stocks began to decline three weeks ago as economic reports spurred speculation the U.S. economy isn’t recovering fast enough to justify the S&P 500’s 36 percent advance since March 9. The Federal Reserve said in its June 10 Beige Book business survey that “stringent” loan conditions persist even amid signs the recession is moderating.

    “This has been a government-induced rally,” said Jordan Irving, who helps manage more than $110 billion at Delaware Investments in Philadelphia. “We need to see some real positives coming from internal demand, as opposed to government- related demand, and it’s just not there.”

    Borrowing costs climbed in the past month, with the average rate on a 30-year fixed mortgage reaching a six-month high of 5.59 percent on June 11, according to McLean, Virginia-based Freddie Mac. The rate was 5.42 percent when last reported on June 25. The increase spurred the Mortgage Bankers Association to cut its forecast for mortgage originations in the U.S. by 27 percent on June 22 as fewer people refinance their home.


    Marshall & Ilsley Corp., Wisconsin’s largest bank, has tumbled 53 percent since May 11, wiping out three-fourths of its rally from March 5. Citigroup Inc. analysts on June 11 predicted loan losses will remain high even after the Milwaukee-based lender raised capital by selling shares.

    D.R. Horton Inc., based in Fort Worth, Texas, is down 30 percent since May 4, the steepest decline among rivals in the S&P 500 since then. The largest U.S. homebuilder posted a worse- than-estimated quarterly loss on May 4.

    “The average regional bank out there is going to see increasing net charge-offs and loan loss provisions, and people may say, ‘Gee, do I really want to be in banks?’” said Barry Knapp, head of U.S. equity strategy at Barclays Plc in New York. “That could definitely be a catalyst for a sell-off.”

    ‘Dow Theory’

    Lagging transportation stocks are another bad omen for the rally, according to strategists at Bank of America Corp. and Raymond James Financial Inc., who say gains in airlines, truckers and railroads usually precede economic rebounds.

    The Dow Jones Transportation Average has fallen 6 percent this year, led by a 60 percent drop in Fort Worth, Texas-based American Airlines parent AMR Corp. The 2009 decline exceeds the 2.7 percent retreat in the Dow Jones Industrial Average of 30 companies that are “leaders in their industries,” according to Dow Jones & Co., a unit of News Corp.

    Adherents of a century-old stock-picking strategy called “Dow Theory” say the averages must exceed their Jan. 6 intraday highs of 3,737.01 and 9,088.06, respectively, to send a buy signal for stocks, Bank of America’s Mary Ann Bartels said. The measures are more than 5.9 percent below those levels.

    “For cyclicals in general, it’s hard to imagine that they’re going to have very good earnings in the second quarter,” said E. William Stone, who oversees $100 billion as chief investment strategist at PNC Wealth Management in Philadelphia. Because the economy probably shrank for the fourth straight period, “you’re flying against the wind.”

    To contact the reporters on this story: Lynn Thomasson in New York at; Rita Nazareth in New York at
    Last Updated: July 1, 2009 10:23 EDT
  2. Don't think it's going to fizzle while everyone is calling for it to fizzle.
  3. Are you serious?

    All I hear is unbridled optimism and 'green shoots' form equity analcysts and financial talking heads.

    Hell, the uber-credible Dennis Kneale, who has the signature economic mind of our generation, said the recession is over, and probably got an oral treat from Kudlow off set.
  4. I listen to Bloomberg all day in the office. Almost everyone they have on there is yapping about how they expect this rally to falter. In fact, they've been yapping about that for about 2 months now. Yet, the market continues to defy them and you (who has also posted these doom articles for the last few months).
  5. Bloomberg? No one listens to Bloomberg, those hacks!

    CNBC, Kudlow, Dennis Kneale, and Crames is where it's at, bro!
  6. Dennis Kneale has never traded a stock in his life. And him claiming that the recession is "over" has nothing to do with where the S&P is going in the next quarter.

    If you think that CNBC or Cramer for that matter have any credibility, then you really need some help.

    Your "buddies" on Fast Money are all Bearish.
    Now what does that tell you?
  7. I cannot be positive, but I think BLSH was being sarcastic with his CNBC comment.
  8. You can't possibly think I was serious. My post was 100% sarcasm, including the packaging.

    As far as Fast Money, they may have been bearish last night, but they'll get into wardrobe and change their minds.

    Cramer goes into his own personal closet to change his mind multiple times in a single day.

    I've never seen a bigger flip-flopper than Crames, but got to hand it to Kudlow for the opposite, no matter how far up his ass his head is.
  9. You beat me to it.

    Indeed, I was. More than anyone can possibly appreciate. :cool:
  10. I think Ivanovich is right. There are only few people that think this is more than a bear market rally.
    The reason stocks go up is because owning the underlying currencies is even worse than owning stocks.
    I think we will see more sidways / slightly lower during the next 3 months and then a big end of year rally.
    2010 will be tough again for bulls when we will see USA loosing AAA and economic stimulus vanish.
    #10     Jul 1, 2009