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Post by Conrad Alvin Lim on Sept 10, 2006 22:27:19 GMT -4
ECONOMIC PREVIEW Inflation cliffhanger this week Tiny change in CPI report to have major repercussions in markets By Greg Robb, MarketWatch Last Update: 8:00 AM ET Sep 10, 2006
WASHINGTON (MarketWatch) -- The August consumer price index is the main event for the week and rarely has so much been riding on such a narrow difference in data.
There could be entirely different reactions from markets if the core rate of the August CPI, which excludes food and energy, prints at an 0.2% rise or an 0.3% increase.
A two-tenths reading may be taken as a sign that the inflation wave of 2006 has crested and the Fed can remain on hold.
A three-tenths reading may be interpreted as a sign that the Fed is not yet out of the woods and rates may have to rise again.
On top of everything, economists say that it is too close call, with the consensus forecast of Wall Street economists actually forecasting a 2.5% gain in the August core CPI.
"To be honest, I think it is a toss-up whether it comes in a two-tenths or three-tenths," said Nigel Gault, chief U.S. economist at Global Insight.
One big question mark is the behavior of apparel prices, which spiked earlier in the year, but fell a sharp 1.2% in July. Other factors may be the behavior of car prices and medical costs.
Donald Ratajczak, economist consultant with Morgan Keegan, sees core CPI rising 0.2% in August. He expects a small decline in apparel and some price declines as the auto companies struggled to sell SUVs.
Shelter costs, which account for 30% of the core index, are expected to remain on an upward trend.
Energy prices are expected to decelerate sharply in July.
Core consumer inflation eased back in July, rising just 0.2% after four months of 0.3% gains.
This moderation was seen as reducing the likelihood that the Fed would have to hike rates again.
Economists look for a 0.3% rise in the headline CPI for August after a 0.4% gain in July.
Core prices rose 2.7% in the past year ending in July. This was the fastest pace since late 2001.
The year-over-year increase is expected to rise in August, no matter whether it is a 0.2% or a 0.3% gain.
But the 3-month moving average will drop below 3% if the core rate rises 0.2%, while it will stay above 3% if there is a 0.3% increase.
With a 0.2% gain in core prices, "you can make the case that there are no further upward pressures," Ratajczak said.
"The big fear is that inflation would get worse before it gets better. These numbers may contradict that and say 'no we're cresting now'," he added.
Other key data: retail and trade numbers In other important releases this week, retail sales are expected to moderate significantly in August after a strong rise in July.
Economists expect retail sales to remain flat in August, well below July's sparkling 1.4%. The data will be released Thursday at 8:30 a.m.
Once again, Detroit is responsible for the swing up and then down. Auto sales soared in July on new incentives. Sales then fell back to more normal levels in August.
Excluding autos, retail sales are expected to rise 0.3%, after a 1.0% rise in July.
Also, the consensus forecast of Wall Street economists is for the July trade gap to widen to $billion from $64.8 billion in June. Import growth is expected to surge in July led by crude oil imports.
The trade data will be released on Tuesday at 8:30 a.m. Eastern.
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Post by Conrad Alvin Lim on Sept 13, 2006 23:18:25 GMT -4
Housing decline to bottom out in mid-2007: NAHB Widespread housing price bust unlikely, economists say By Robert Schroeder, MarketWatch Last Update: 7:16 PM ET Sep 13, 2006
WASHINGTON (MarketWatch) -- A downswing in home sales and building should bottom out sometime during the middle of 2007 before recovering in the latter part of 2008, a home-building industry economist said Wednesday.
In the meantime, said another economist, consumers shouldn't expect a "widespread" bust in home prices as some of the strength begins to dwindle from regional housing markets.
The National Association of Home Builders' David Seiders and the Federal Deposit Insurance Corporation's Richard Brown were among four economists testifying Wednesday before two Senate Banking subcommittees' hearing about the housing bubble and its implications for the U.S. economy.
All four -- including analysts from the National Association of Realtors and the Office of Federal Housing Enterprise Oversight -- agreed housing activity is slowing. Economists added the slowdown poses some risks to the U.S. economy but that a drop-off in activity isn't nationwide.
Seiders said a "below-trend" performance for home sales and building is likely over the next two years.
"The downswing in home sales and housing production should bottom out around the middle of next year before transitioning to a gradual recovery that will raise housing market activity back up toward sustainable trend by the latter part of 2008," Seiders told the subcommittees in prepared testimony.
Brown, meanwhile, told senators that historically, widespread price busts haven't necessarily followed price booms.
But, he cautioned, today there are more boom markets than in the past, and more consumers who have borrowed using "nontraditional" mortgage products, like interest-only loans.
"Borrowers who took on nontraditional loans as a means to afford a more expensive home may be particularly vulnerable to adverse housing market conditions," Brown told the subcommittee in written testimony.
Mortgage applications up Meanwhile, as the economists were acknowledging a slowdown in housing, another industry group was reporting that mortgage applications were up in the last week.
The number of applications for mortgages filed with major U.S. banks rose a seasonally adjusted 3.2% last week, the Mortgage Bankers Association reported Wednesday.
However, application volumes are still down 22.8% compared with the same week a year ago, in line with other data showing the nation's housing market cooling significantly. But applications have rebounded in recent weeks.
Applications for mortgages to purchase homes rose 5.3% on a week-to-week, seasonally adjusted basis, while applications for refinance loans increased 0.1%, the MBA's data showed.
The economic impact of the housing slowdown will vary by region, economists noted. Tom Stevens, the Realtors' president, said solid job growth in Florida, California, Arizona and other states should keep price declines short-lived "as new job holders provide demand and support for the housing market."
Overall, the impact of a slowing housing market on the nation's economy may be comparatively muted, said Seiders.
"The downswing in home sales and housing production will continue to detract from overall economic growth through mid-2007," Seiders testified.
"However," he said, "much of this negative impact should be offset by strengthening activity in other sectors of the U.S. economy, keeping GDP growth reasonably close to a sustainable trend-like performance."
Home price growth slows Home prices grew at their slowest pace in six and a half years during the second quarter of the year, recently released government figures show. Last week, the Office of Federal Housing Enterprise Oversight reported that home prices increased at a 4.7% annual rate during the second quarter. Prices had risen at an 8.8% annual rate in the first quarter and peaked at a 17.8% annual pace in the third quarter of 2004.
Ofheo director James Lockhart said the data are "a strong indication that the housing market is cooling in a very significant way."
Earlier Wednesday, Lockhart once again pressed Congress to pass reforms on Fannie Mae (FNM : 53.00, +0.20, +0.4% ) and Freddie Mac (FRE : 64.10, +0.20, +0.3% ) , the two giant government-sponsored housing enterprises that are major sources of money for U.S. homebuyers.
Lawmakers have been working to fashion new rules following accounting scandals at both companies. Among the reforms being sought are a new regulator that would have authority to approve the issuing of new products by Fannie and Freddie, and a limit on the amount of mortgage-backed securities each company may hold. Some lawmakers and the Bush administration are concerned that the $1.4 trillion in securities held by the companies is too large and poses a risk to the U.S. financial system.
Congress's reform effort has been stymied and faces uncertainty as lawmakers prepare for elections in November.
Echoing Lockhart, Ofheo's chief economist told senators Wednesday that healthy housing markets could "soften seriously" from unexpected disruptions at Fannie and Freddie. "While both companies have made progress [on reform], much more needs to be done," said economist Patrick Lawler.
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Post by Conrad Alvin Lim on Sept 17, 2006 8:34:35 GMT -4
MARKET SNAPSHOT Stocks seen trading sideways ahead of rate meeting Fed to decide on key interest rate Wednesday; stock gains may be short-lived By Carla Mozee, MarketWatch Last Update: 6:01 AM ET Sep 16, 2006
SAN FRANCISCO (MarketWatch) -- U.S. stocks are expected to be rangebound early next week as traders await the Federal Reserve's policy meeting Wednesday for hints on what's next for interest rates.
The Fed is expected to keep rates on hold for now and any signal it will halt for longer would likely be welcomed by investors. But after all three major indexes chalked up healthy gains this week, any post-Fed rally may be short-lived.
"We've had a nice rally recently and the market is looking, on the margin, overextended. So we would think that choppiness...should be expected," said John Forelli, senior vice president and portfolio manager at Independence Investments.
Investors are facing a full week. The Federal Open Market Committee, the Fed's rate-policy setting body, will decide what to do with its key interest rate, which now stands at 5.25%.
Federal Reserve Chairman Ben Bernanke and his team are widely expected to stand pat on rates for the next three meetings.
Fed funds futures traded on the Chicago Board of Trade are showing a 12% chance of a move to 5.5% either next week or at the October meeting, and about 20% for the next three meetings, including a get-together scheduled for Dec. 12.
New data on inflation at the wholesale level in August is due from the Labor Department on Tuesday. The core producer price index, excluding food and energy prices, is seen increasing by 0.2%, according to economists surveyed by MarketWatch. In July, U.S. wholesale prices fell 0.3%. Housing starts are also expected Tuesday.
On Thursday, the Conference Board will post its report on leading economic indicators and the Philadelphia Federal Reserve will release its index of business conditions in the Mid-Atlantic region.
There are earnings reports due from financial services firms Morgan Stanley (MS : 70.95, +0.63, +0.9% ) and A.G. Edwards Inc. (AGE : 54.25, -0.31, -0.6% ) , retailers Circuit City Stores Inc. (CC : 26.12, +0.30, +1.2% ) and Rite Aid Corp. (RAD : 4.80, +0.07, +1.5% ) , as well from as Palm Inc. (PALM : 14.77, -0.15, -1.0% ) .
Earlier this month, Palm warned that its fiscal first-quarter sales would fall short of Wall Street's estimate because of lower-than-expected shipments of Treo handheld devices to retailers.
Also, software maker Oracle Corp. (ORCL : 16.33, -0.14, -0.9% ) is expected on Tuesday to report that its quarterly profit rose and revenue climbed more than 19%.
"Earnings and the economy are going to be the main focus, but we will start getting pre-announcements over the next few weeks," said Peter Boockvar, equity strategist at Miller Tabak, noting that the third-quarter earnings season is right around the corner in October.
Forelli said the market would cheer if the Fed signals a lengthier pause and inflation and economic numbers meet or beat market expectations. But he expects such gains to be limited. "It would be nice to see the PPI report give us further evidence that inflation remains under control...but we're at a point where we need a week of consolidation after the rally we've had."
The bulls donned their party hats on Friday following data that showed consumer inflation moderating in August as gas and home ownership costs rose at a slower-than-expected pace. Traders sent the major indexes higher to close at four-month highs.
The CPI report overshadowed developments from the auto sector. Ford Motor Co. (F : 8.02, -1.07, -11.8% ) said it will cut its salaried workforce by one-third and DaimlerChrysler Co. (DCX : 49.36, -3.54, -6.7% ) cut its 2006 outlook.
Also adding kick to Wall Street's celebration was the overall decline in energy prices. Crude for October delivery recorded small gains on Friday but ended with a drop of more than 4% at the end of the last five sessions.
"Lower energy costs are good for earnings and margins and that helps the market," said Subodh Kumar, chief investment strategist at CIBC World Markets. "But the speculative enthusiasm is coming out of the energy area, both stocks and the commodities, so that could remain an area of weakness here."
Kumar, like Forelli, is expecting a narrow trading range next week. "If the Fed is on neutral in terms of interest rates, what you may see is sector rotation..so the net result at the index level is no change."
For Kumar, the action in the market is occurring "below the surface level" of the indexes with investors deciding whether to continue to buy into the leadership stocks of staples, healthcare and communications or "bottom-fish in cyclicals."
Boockvar said stocks have had a good run off the June lows because of expectations of a Fed pause and the drop in energy prices. He said, however, there are "a lot of hypocritical reasons" for the rally and the time is approaching for investors to consider if the higher moves are sustainable.
"Commodity prices are going down because [of concerns] about global demand and the economy slowing down. If that's the case, then why are [investors] buying cyclical stocks? They are because energy prices are going down. So people are looking at certain information in a vacuum and not paying attention to the reason behind it."
Friday's market action If there is enough momentum to propel stocks significantly higher next week, all eyes will be on the Dow Jones Industrial Average ($INDU : 11,560.77, +33.38, +0.3% ) , which is nearing its all-time intraday high 11,750.30, set on Jan. 14, 2000. Its all-time closing high of 11,722.98 occurred on the same day. On Friday, the Dow closed up 33.38 points to 11,560.77. It gained 1.4% for the week.
The S&P 500 ($SPX : 1,319.87, +3.59, +0.3% ) rose 3.59 points to 1,319.87, and the Nasdaq Composite ($COMPX : 2,235.59, +6.86, +0.3% ) added 6.86 points to close at 2,235.59. For the week, the Nasdaq rose 3.2% and the S&P 500 advanced 1.6%.
Treasury prices gave up early gains to close lower Friday, pushing yields higher, after Thomas Hoenig, president of the Kansas City Federal Reserve Bank, said that it would take a shock to tip the U.S. economy into a recession. The benchmark 10-year Treasury note closed with a yield ($TNX : 47.98, +0.05, +0.1% ) of 4.794%, up from 4.764% late Wednesday.
Gold for December delivery fell by $10.30 to close at $586 an ounce, marking the contract's weakest closing level since June 19.
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Post by Conrad Alvin Lim on Sept 18, 2006 1:46:41 GMT -4
Is the commodities boom finally over? Call it a 'bump in the road' or 'seasonal bottom' but not an end, say analysts By Myra P. Saefong, MarketWatch Last Update: 6:28 PM ET Sep 15, 2006
SAN FRANCISCO (MarketWatch) -- A four-year rally that drove prices of crude oil, natural-gas and copper to record levels and gold and silver to quarter-century highs has reversed with steep declines in the past few weeks, leading some to question whether the price boom in commodities has finally run its course.
Natural-gas futures have dropped close to 70% from their peak in mid-December of last year and crude and gold prices have fallen around 19% from the highs set earlier this year, stirring debate about whether the sharp turnaround spells the end of the bull market in commodities or simply a pause after a fierce run-up.
It's a "pretty serious bump in the road," said Bruce Scherr, chief executive officer of Informa Economics Inc. "The commodity boom is caught in a tug of war" between global growth, particularly Asia, unpredictable geopolitics and global monetary tightening, he said. "But I don't think it's necessarily over."
Front-month crude futures prices, which traded at about $27 in July 2001, topped out at $77.95 a barrel in mid-July 2006. But on Friday, they closed just above $63 a barrel, having fallen 4% in the last week alone.
Gold's front-month price rose as high as $728 an ounce in mid-May, the loftiest level since Sept. 1980. It was worth $300 or so four years earlier, but closed at $583 Thursday.
Silver reached a 23-year high of $15.20 an ounce in mid-July, more than three times the level it traded at four years earlier. It closed under $11 Friday, down 28% from the peak. And copper touched a never-before-seen level above $4 a pound in mid-May, after trading at about 75 cents four-years earlier. It was last at $3.31, down about 18% from the peak.
Natural-gas futures hit a record of $15.78 per million British thermal units in mid-December of last year, over triple the price for three years earlier. It closed Friday under $5, down 69% from the all-time high.
The Reuters/Jefferies CRB Index offered a broad view of the overall performance in commodities, touching an all-time high of 365.45 points in May of this year, only to trade at an over one-year low under 305 on Friday.
"If you look at the CRB Index, the unprecedented uptrend in commodity prices started in the beginning of 2002, and really has not had substantial correction of any kind," said Chris Kraft, president of RCI Advisory Services.
"We are due for some corrective/declining price action in the major commodity markets, but I would hesitate to say the 'boom' is over by any means," he said.
The big bang The commodity boom began roughly in early 2002, with at least one analyst pegging its start in 2000-2001, and market-moving factors poured in to boost the CRB Index to its peak about four months ago.
In early 2002, the U.S. economy "had some of the lowest real interest rates in modern history," said Scherr. Fed funds bottomed out at 1% in the third quarter of 2003 after a steady decline from 6.5% in late 2000 because of Fed concerns about an economic slowdown and the Sept. 11, 2001 terrorist attacks' impact on economic prospects.
From the first quarter of 2002 to near the end of 2005, the market has seen negative real interest rates, that is interest adjusted for inflation, he said, so there was "tremendous liquidity available to underpin dramatic economic growth."
Then there was "steady global tightening of monetary policy, particularly in the U.S., Japan and Europe, removing a substantial amount of liquidity that had been available for a substantial number of years," he said.
Meanwhile, fundamental demand for commodities worldwide, especially from China and India, "volatile geopolitics," and a U.S. plan to boost use of renewable fuels "continue to provide a platform for commodity-price expansion," he said.
That's a "pretty substantial brew to underpin the demand for commodities, said Scherr. "Both from a real standpoint and also from more of a speculative standpoint."
Patchwork Many commodities experts refused to give a definite reply to the question of whether the bull run is over for the market. No one seemed willing to call the top on the volatile sector.
Instead, many suggested that the answer simply depends on how a particular investor views the market.
One "gauge to weighing the boom" is deciding whether the level of "fear in the geopolitical arena" remains, said Michael Cavanaugh, an analyst at MyFuturesOnline.com. "If one thinks that the chaos in the Middle East (and the rest of the world) will continue or increase, we introduce new levels of fear -- then we are still in a boom."
In turn, if an investor believes the U.S. economy is going into a prolonged slowdown, then the highs for oil are in, according to Phil Flynn, a senior analyst at Alaron Trading. If instead he sees a soft landing for the economy, then demand for oil will flourish again, he said.
Flynn said he believes the economy will prove to be more resilient and that the drop in oil prices will spur more demand.
Energy is the "leading force in commodities and it won't go down too much yet," said Michael McDougall, an analyst at Fimat USA.
"The open interest numbers are climbing for oil and the participation of financial parties looks like it is a game that has many innings left," said Tom Kloza, chief oil analyst at the Oil Price Information Service.
Kloza offered a flat-out "no" to the key question. "I disagree with those who are making this out to be an implosion or a bubble burst" for oil, he said.
"Every year, we see gasoline prices and crude-oil prices give up some 25%-30% of value. What's odd about this year is that is has happened about six weeks early," he said, adding that he expects prices to "snap back once they find their winter 2006-2007 bottoms."
In the meantime, a single terror attack on U.S. soil "would cause the commodity boom to continue," said Cavanaugh. "Gold prices would rise, oil, grains -- everything else that is supply/demand driven and the commodity boom would flourish once again."
And lower prices for gasoline, say between $2.25 and $2.50 a gallon on a national average, "will help re-energize the economy, keep the Fed from raising rates and thus begin another cycle of higher commodity prices in 2007," said John Person, president of National Futures Advisory Services.
Signs of the times Still, at the moment, there is a seasonal weak period for oil as the driving season ends and winter heating-oil season has yet to begin, said McDougall.
Oil supplies are comfortable and funds were betting too much on Middle East problems as well as an agitated hurricane season, and with neither playing out as some expected, prices have weakened, he said.
"Commodities could have reached a peak, but we could still see some surprises," said McDougall.
So what's a sign that the long-term bull market is over?
For oil it would be "a well defined top formation on the monthly chart or a contraction in U.S. manufacturing," said Flynn.
The boom is not over, "but we may be taking a breather," he said, pointing out that worries over the slowing economy in the U.S. and elsewhere has "some taking a wait and see attitude."
Concern over a weaker economy is a key factor, James Williams, an economist at WTRG Economics agreed, pointing out that a big risk to oil prices is negative news about the U.S. or Chinese economy. But he sees the drop in oil and natural-gas prices as probably greatest factor.
"Refining any metal from the ore requires a large amount of energy [and] lower energy prices reduce production costs, putting downward pressure on the price of the metal," he explained.
Dale Doelling, chief market technician at Trends In Commodities follows price trends and for now, gold prices show that "further deterioration is the most likely scenario," he said.
But why bother to ask whether the commodities boom is over when it's not, said John Stafford, editor of Stafford's Investment Strategy Letter.
"The seasonal bottom is being made now," he said. "It may or may not be the [ultimate] bottom," he said.
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Post by Conrad Alvin Lim on Sept 24, 2006 0:46:32 GMT -4
MARKET SNAPSHOT Equities appear ripe for further losses Stocks may be pulled lower amid increased jitters over U.S. economic health By Carla Mozee, MarketWatch Last Update: 7:00 AM ET Sep 23, 2006
SAN FRANCISCO (MarketWatch) - U.S. stocks will remain on shaky ground next week as investors -- already unsettled by signs the U.S. economy could be slowing more quickly than expected - face a second week of heavy economic data as well as the end-of-quarter earnings warning season.
"I imagine we would tread water or retrace," said Donald Selkin, director of equity research at Joseph Stevens. "I don't see a big collapse, but we're susceptible," to losses.
Investors were spooked Thursday after a report showed manufacturing activity in the Philadelphia region fell in September for the first monthly decline since April 2003, led by a drop in new orders and shipments.
The Philly Fed report touched a nerve with investors, said Philip Dow, director of equity strategy at RBC Dain Rauscher. Stocks tumbled on the report, the dollar fell against major currencies and the bond market rallied, pushing yields to more than six-month lows.
"Up until now, we felt as though manufacturing was holding its own. Surprisingly, the consumer is doing a little bit better and now it looks like manufacturing may be questionable."
Selkin noted that a number of stocks on the Dow Jones Industrial Average ($INDU : 11,508.10, -25.13, -0.2% ) hit 52-week highs this week and that the benchmark index was closing in on its all-time closing high, and those factors have created resistance.
"The question now is whether this is just another small retracement within an intermediate-term advance or is it the beginning of something much worse that takes the indexes back to their June and July lows?" wrote Mark Arbeter, chief technical analyst at Standard & Poor's, in a weekly update.
Next week's schedule for data releases includes figures on core consumer inflation, personal income and spending, as well as consumer confidence.
Earnings are expected from drugstore chain Walgreen Co. (WAG : 46.90, +0.62, +1.3% ) and BlackBerry device maker Research in Motion Ltd. (RIMM : 86.85, -0.45, -0.5% ).
A number of Federal Reserve officials are scheduled to make speeches, including Federal Reserve Bank of St. Louis President William Poole, who will speak on the issue of data dependence Friday. Poole will be a voter on the Fed's rate-policy committee, beginning with the two-day meeting on Oct. 24 and 25 through next year.
The market wasn't jittery the entire week. Stocks pushed higher Wednesday following strong earnings from Oracle Corp. (ORCL : 17.54, -0.54, -3.0% ) and Morgan Stanley (MS : 71.78, +0.14, +0.2% ) and, of course, after the Federal Reserve held rates steady at 5.25%. Equities pushed past some disappointment over the Fed's decision to keep open the possibility of further rate hikes.
Thursday's losses were exacerbated when the Conference Board said its leading economic indicators gauge fell for the fourth time in the past five months, suggesting growth will continue to slow through the end of the year.
But after the Philly Fed report, December fed funds, for the first time, started pricing in a small chance of a rate cut to 5% from 5.25%. By Friday, the odds had risen to 26%.
Ken Kam, portfolio manager of the Marketocracy Masters 100 Fund, believes bets on a rate cut are premature.
"When you hear reports of one Fed area of activity gauges pointing downward, I think it's going to take more than that before they start cutting rates again."
However, he said the Fed looks likely to keep rate moves on ice for a while "partly because [they may be] afraid that if they were to push rates any higher, the housing market might have a very serious problem and that might have broader reprecussions for the broader economy."
The markets may be rattled, but not surprised, next week if fresh data reflect a continued cooling in the housing sector. New and existing home sales numbers will be released on Monday and Wednesday.
RBC's Dow said he expects the market to be most interested in the durable goods orders report for August, due on Wednesday, as it should more information about the pace of the economic slowdown.
Kam thinks the market will keep close watch on the final revision of second-quarter gross domestic product, which is expected by economists polled by MarketWatch to remain at 2.9%.
If GDP remains unchanged, said Kam, that's "about as close to a bull's eye" as economists are going to Bernanke's target growth rate of about 3%, a level the central bank leader has said is not inflationary but is sustainable.
"There have only been two soft landings accomplished by the Fed...by Greenspan in 1995 and in 1966, under (Fed Chairman) William McChesney Martin, Jr. And the U.S. was on the gold standard at that time. So this does not happen a lot."
Friday's market The loss in equities was a letdown for many market players who were looking for the Dow and the S&P 500 Index ($SPX : 1,314.78, -3.25, -0.2% ) to hit new record highs or, at least, move closer to them. The Dow closed down 25.13 points at 11,508.10. The S&P 500 shed 3.25 points to 1,314.78 and the Nasdaq Composite ($COMPQ : 2,218.93, -18.82, -0.8% ) lost 18.82 points to finish at 2,218.93.
For the week, the Dow lost 0.5%; the S&P 500 fell 0.4%; and the Nasdaq gave up 0.7%.
The 10-year Treasury note closed a yield ($TNX : 45.97, -0.51, -1.1% ) of 4.596%, just above the benchmark's lowest standing since early March.
Crude-oil futures closed lower Friday and lost more than 5% for the week with increased inventories and an easing of threats to global production.
The U.S. dollar traded little changed against major currencies Friday, recovering from session lows as traders squared positions ahead of the weekend.
Gold futures finished with its third-straight session of gains allowing the December contract to close up $7.10, or at $595.40, aided by the dollar's weakness. The contract posted a 2.1% weekly gain.
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Post by Conrad Alvin Lim on Sept 25, 2006 2:46:51 GMT -4
Sluggish housing, steady inflation on tap By Rex Nutting, MarketWatch Last Update: 7:00 AM ET Sep 24, 2006
WASHINGTON (MarketWatch) - Nervous financial markets will find plenty to fret about in the coming week's economic data, which cover the waterfront from housing to the factory sector to consumer confidence to inflation.
"With markets on high alert for recession signs, just about anything can get a reaction," cautioned Avery Shenfeld, an economist for CIBC World Markets, who said he expects news on home sales that "won't be pretty."
The housing sales data could get a lot of attention early in the week, but the report on durable-goods orders on Wednesday, the Chicago purchasing managers index on Friday and the core inflation figures on Friday could also hold some surprises.
The market was spooked last week by the surprising decline in the Philly Fed factory sentiment index, "which sparked fears that the slowdown in the U.S. economy may be broader and more pronounced than had been anticipated," said Stu Hoffman, chief economist for PNC.
While the reaction to the Philly Fed was overblown, the weakening housing data aren't likely to calm any nerves, Hoffman said.
A major question for the markets and for the Fed is how much impact the collapse in housing will have on the rest of the economy. So far, the mainstream view is that the economy will be shaken, but not broken.
But the financial markets are clearly worried, as signified by the extreme inversion in the Treasury yield curve. The markets are betting on rate cuts from the Federal Reserve. Any signs of further weakness would solidify that expectation.
Existing-home sales Sales of existing homes likely fell for the fifth straight month (and the ninth time in the past year) by 2.4% in August, to a seasonally adjusted annual rate of 6.18 million, according to a survey of economists conducted by MarketWatch. It would be the lowest sales pace since January 2004. The data will be released Monday at 10 a.m. Eastern.
Mortgage rates have been falling in recent weeks, but the decline probably won't show up in the August. Existing-home sales are recorded at the closing of the sale, usually a one or more months after the sales contract has been signed.
Pending home sales fell by 7% in July, a further indication of a soft market. Median sales prices have not fallen on a year-to-year basis, but it's been close. In June, prices were flat year-over-year before ticking up to a 0.9% gain in July. Median prices of single-family homes have not fallen on a year-over-year basis since April 1995. Condo prices have already dipped into negative territory, falling 1%.
"Buyers hold the advantage - and they know it," said Brian Bethune and Nigel Gault, economists for Global Insight. "But sellers do not seem to realize this because they have not budged much in adjusting their selling prices."
"Home sales have yet to bottom," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank.
The disequilibrium in the market could persist as buyers wait, figuring prices will fall, while sellers remain equally stubborn, said David Greenlaw, an economist for Morgan Stanley. Greenlaw expects sales of both existing and new homes to fall another 10% before stabilizing.
Inventories of unsold homes are likely to climb higher. As of July, 3.9 million homes were on the market, up 40% in the past year. That represented the largest supply relative to sales in 13 years.
New-home sales Meanwhile, sales of new homes are expected to fall about 3.4% in August to a seasonally adjusted annual rate of 1.036 million, which would be the lowest since April 2003. As of July, sales of new homes had fallen 21.6% in the past year, while inventories of unsold new homes had soared 22.4%. The median price had risen 0.4% in the past year.
There's little reason for near-term optimism about new home sales. "Builders are extremely pessimistic," said Global Insight's Bethune and Gault. The home builders' sentiment index has plunged to a 15-year low, while housing starts have fallen 19.8% in the past year to a three-year low.
All the housing data are very volatile month-to-month. That's why PNC's Hoffman said he's "not ruling out an upside surprise."
But even if sales are stronger than expected in August, "the trend is (painfully) clear - the housing market is declining and this drop has a way to run," Hoffman said.
After the Philly Fed's surprisingly decline, analysts are wondering if the factory sector is as strong as they've assumed. The soft-landing scenario for the economy hinges on the ability and willingness of business to keep spending and investing in capital equipment even in the face of some consumer weakness.
The Chicago purchasing managers index on Friday could be the next hurdle ahead of next week's release of the national manufacturing sentiment index from the Institute for Supply Management.
The Chicago PMI, like the Philly Fed, is a regional sentiment index. Economists expect a very robust reading of 55.9% in September after 57.1% in August. But, like the Philly Fed, the Chicago PMI can be very volatile.
The Commerce Department will release its durable-goods orders data for August on Wednesday at 8:30 a.m. Economists are expecting a 0.6% increase in orders after a 2.5% drop in July, which was led by a sharp drop in transportation orders.
For August, economists expect aircraft bookings to drop again, partially offsetting a bounce back in autos and defense.
Orders for core capital goods - which exclude both aircraft and defense goods - will be the "bright spot" in the report, rising by about 2.5% in August, said Brian Jones, an economist for Citigroup Global Markets.
Inflation So much for growth, what about inflation?
The Fed's preferred inflation gauge will be released on Friday at 8:30 a.m. as part of the income and spending report. The core personal consumption expenditure price index is expected to rise 0.2% in August after a rarely seen 0.1% gain in July.
The year-over-year gain would tick up to 2.5% or stay at 2.4%, depending on the rounding. Either would be far above the Fed's comfort zone of 1% to 2%, but that's not news.
"Market reaction should be minimal," said Ellen Beeson Zentner, U.S. macro economist for Bank of Tokyo-Mitsubishi.
Personal incomes likely rose 0.3% in August, which would be the smallest gain since November. Data from the Labor Department showed a small gain in hourly wages and a decline in hours worked, which means income from wages and salaries was probably tepid.
Spending, meanwhile, also slowed, the economists say. With retail sales rising just 0.2% during the month, total consumer spending probably rose 0.2% as well, economists said. It would be the smallest gain in nominal spending since November.
And with inflation running at 0.2%, real consumer spending was probably flat, the weakest since last September.
The two main consumer confidence surveys are expected to show modest gains in September, reflecting lower gas prices and the earlier rally in the stock market. But the housing slump should also weigh on consumers' mood, economists said. The surveys will be released on Tuesday by the Conference Board and on Friday by the University of Michigan.
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Post by Conrad Alvin Lim on Sept 30, 2006 21:07:23 GMT -4
MARKET SNAPSHOT Stocks seen heading lower after hitting record highs By Nick Godt, MarketWatch Last Update: 7:00 AM ET Sep 30, 2006
NEW YORK (MarketWatch) -- U.S. stocks are expected to head lower next week -- the first of the fourth quarter - as concerns about the strength of the economy and earnings take center stage again following a big end-of-quarter push that took blue chips to near record levels.
The third quarter, which saw the Federal Reserve twice keep interest rates on hold as the housing market slowed and energy prices pulled back, ended on a positive note. Many on Wall Street are optimistic that the U.S. economy is still headed for a soft landing.
But "I wouldn't be surprised to see next week give up or consolidate these gains, which is what happens after spasmodic run ups," said Barry Ritholtz, market strategist at Ritholtz Capital Partner.
The Dow Jones Industrial Average ($INDU : 11,679.07, -39.38, -0.3% ) grabbed all the headlines this past week as the index surpassed a record-high closing level of 11,728 on Thursday and Friday, although it wasn't able to close above it, nor surpass an intra-day record of 11,750.
A few blue-chip stocks led the Dow's advance, including General Motors (GM : 33.26, +0.20, +0.6% ) , Merck (MRK : 41.90, -0.16, -0.4% ) and AT&T (T : 32.56, +0.19, +0.6% ) .
Still, for the month, the Dow advanced 2.6% while it tacked on 4.7% in the third quarter.
The S&P 500 Index ($SPX : 1,335.85, -3.30, -0.2% ) rose 3.5% in September and 5.2% in the third quarter, reaching five-and-a-half-year highs. The Nasdaq Composite ($COMPQ : 2,258.43, -11.59, -0.5% ) gained 3.4% in the month and 4% in the quarter.
But some investors said that October, often a scary month for traders, could give the markets a rough ride.
"Should the market fail to hold these highs, this could spook some technical traders," said Jim Awad, president of Awad Asset Management.
October is known as the "jinx month", because of the stock market crashes which occurred that month in 1929 and 1987, and mini-crashes that occurred in 1978, 1979, 1989 and 1997, according to the Stock Traders' Almanac.
And "it's not just the end of a regular quarter," said Marc Pado, market strategist at Cantor Fitzgerald. "September 30 marks the end of the fiscal year for most mutual funds," which want to show big gains before closing their books.
Since early August, the Dow's advance has been fueled by portfolio managers taking their cash out of a fast-falling energy sector and putting it to work in blue chips, Pado said.
But funds may have done a lot of next quarter's buying in the final weeks of September, which might take away some steam from next week's market action, he said.
The coming week will also bring some key economic indicators, culminating with the September employment report on Friday. This will likely test the nerves of stock market players, who have so far been fairly optimistic that the housing market and economy are merely slowing down and that the Fed is done with raising interest rates.
The third quarter granted bullish investors two key wishes: The Fed finally took a pause in its two-year campaign to raise interest rates in early August and remained on hold again on Sept. 20, easing fears rate hikes would put the brakes on economic growth. Energy prices also pulled back sharply, easing concerns both about inflation and about the pressure it has exerted on consumers' wallets.
"The thinking in the market is that maybe the Fed has it right," said Awad. "This might be just a slowdown" that will be cushioned as energy prices recede and business spending picks up.
Whether the so-called "soft-landing" of the U.S. economy -- whereby inflation recedes as growth (and earnings) merely decelerate -- is delivered will be determined in future quarters. "But right now, we're in the sweet spot," Awad said. As that positive mindset held over the past week, stock players paid little attention to further indications of a falling housing market and slowing economy.
The Dow's new highs were achieved even amid news of an unexpected decline in durable goods orders in August, the first decline in the median price of existing homes in 11 years, and more dire outlooks from home improvement retailer Lowes (LOW : 28.06, -0.59, -2.1% ) , homebuilder Lennar (LEN : 45.25, -0.53, -1.2% ) and auto-parts-maker Visteon (VC : 8.15, -0.17, -2.0% ) .
Similarly, a downward revision of second-quarter GDP growth to 2.6% from 2.9% did little to alter hopes that with the Fed out of the way, the economy is poised for a "soft landing."
Sharp gains in the price of 10-year Treasurys have sent yields - used as a benchmark for longer-term interest rate borrowing - sharply lower during the third quarter. This has also fueled optimism that the Fed's continuous hikes in short-term rates over the past two years won't bring the economy to a halt.
But when long-bond yields are well below short-term rates, as they are now, the bond market has traditionally signaled that the economy is headed for a recession.
"A lot of people are looking for a soft-landing," said Rithotz, who doesn't believe in that scenario for a second. "How long can the stock market remain in denial? I don't know."
"But the market can stay irrational longer than you can stay solvent," Ritholtz said, quoting John Maynard Keynes, the British economist who fathered Keynesian economics. "It all depends on how much liquidity remains out there and how long before it's sapped up [by tighter monetary policy]."
Meanwhile, in the first weeks of October, "you're going to have a lot of buy-side people sit on their hands to see whether earnings and economic data point to a soft or a hard landing," Pado said.
Third-quarter earnings season will really kick in during the third week of October 9. Next week will offer few noteworthy earnings until Thursday, when Constellation Brands (STZ : 28.78, -0.07, -0.2% ) , Marriot International (MAR : 38.64, +0.16, +0.4% ) and Solectron (SLR : 3.26, +0.10, +3.2% ) report.
A lot of companies have already issued profit-warnings for the upcoming quarter, but a few might still come next week. Meanwhile, the ratio of negative to positive pre-announcements for S&P 500 companies stands at 2.4, higher than the average 2.0 for the third quarter, according to Thomson Financial.
"I think the market will start drifting down from here as nervousness start to grow about earnings, because there's no reason to be overly optimistic either about this quarter or the outlook for the next one," Pado said. "I don't see huge selling but a falling back to a more reasonable level."
The upcoming Congressional elections in November will also add a degree of uncertainty that might rattle Wall Street, which has a traditionally conservative stance, the Cantor strategist said.
Among the important economic data on tap next week, the Institute for Supply Management (ISM) will release its manufacturing survey for September on Monday. Economists polled by MarketWatch on average expect the ISM index to have softened to 53.3% in September from 54.5% in August.
On Tuesday, U.S. automakers are expected to report an overall increase in domestic sales to 12.4 million units in September from 12.4 million the previous month.
On Friday, all eyes will be on the September jobs report. Economists polled by MarketWatch expect the economy to have added 127,000 nonfarm jobs in September, slightly lower than the 128,000 jobs added in August. The unemployment rate is expected to remain unchanged at 4.7%.
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Post by Conrad Alvin Lim on Oct 1, 2006 21:33:33 GMT -4
ECONOMIC PREVIEW Soft landing in sight ISM, jobs report expected to show a weakening economy[/size] By Rex Nutting, MarketWatch Last Update: 10:52 AM ET Oct 1, 2006
The U.S. economy has geared down after three years of supercharged growth. While inflation remains a concern, it's the prospect of stagnant growth that's the real worry for many economists.
So far, the economic data support the notion that the economy will glide into a rare but truly appreciated soft landing, with growth slow enough to reduce inflationary pressures, but not so weak as to threaten a recession.
The data to be released in the coming week are expected to keep that story alive. The big numbers will be the Institute for Supply Management index for September on Monday and the September jobs report on Friday.
"We expect the employment and ISM reports to show a still-gradual slowing in overall growth -- enough slowing to keep the Fed on hold but not enough yet to trigger easing," said Maury Harris, U.S. economist for UBS.
Easier conditions With gasoline prices and bond yields falling, financial conditions have gotten much easier in the past month, giving consumers and businesses some extra stimulus to keep the economy moving forward.
But it won't be enough stimulus to revive the housing market, or to keep the Federal Open Market Committee from eventually cutting its target on interest rates, Harris said.
"It is difficult for lower interest rates to much stimulate borrowing when house prices are falling and business confidence is ebbing," Harris said.
While nominal mortgage rates have fallen to six-month lows, "the implied real mortgage rate is very high indeed," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. Because house prices are have now fallen 1.7% in the past year, the real mortgage rate is 8% (6.3% for the mortgage plus 1.7% for the drop in prices). A year ago, the real rate was negative 10.6%, Shepherdson said.
The drop in energy prices will also help keep demand up, but the effect is swamped by the private-sector deficit -- the difference between what households and businesses spend and what they earn, said Goldman Sachs economists.
"Even if energy prices drop meaningfully in coming months, our statistical analysis shows that sluggish private demand is likely to keep growth sluggish, pushing the unemployment rate above 5% and probably persuading the FOMC to ease monetary policy next year," Goldman Sachs chief economist Jan Hatzius said.
ISM The ISM has moved back into prominence as an indicator of the factory sector. It's probably the best single gauge of the health of the factory sector, and it has the added advantage of being very nearly the first thing reported each month. The September data will be reported on Monday at 10 a.m. Eastern.
Economists surveyed by MarketWatch are looking for a slight pullback in the ISM to 53.7% in September from 54.5% in August. In the ISM, the 50% is the dividing line between growth and contraction, so anything around 54% is pretty healthy, while anything under 52% would ring some alarm bells.
The Fed always cuts rates once the ISM drops consistently below 50%. Following back-to-back declines in orders for durable goods and a surprising contraction in the Philadelphia Fed survey, investors and the Fed are watching the ISM carefully to see if it too will slow a sharp slowing in industrial activity.
The soft landing scenario depends in large part on the continued growth of capital spending to offset weakness in the consumer sector as the collapse in housing begins to make consumers feel poorer.
"In light of the Philly and orders data, the ISM has now taken on an even greater degree of importance," Shepherdson said. "A significant dip would hugely increase the chance that the apparent softening in industry is real. For now, however, we are skeptical."
"Corporate spending on new equipment should continue to support the industrial sector," said Michael Feroli, an economist for JP Morgan Chase Bank. "Demand for equipment and machinery should remain strong for the foreseeable future."
Jobs The employment report is the other main event of the week. Nonfarm payrolls for September will be reported on Friday at 8:30 a.m.
Economists are looking for another lukewarm showing of about 126,000 new jobs, very close to the 128,000 created in August, which is the average over the past three months. The unemployment rate is expected to be steady at 4.7%.
Average hourly earnings are expected to rise 0.3%, which would put the year-over-year gain at 4%, the highest since June 2001.
"Job growth could be a little sullen in September, with nonfarm payrolls up about 100,000 or 110,000, " said Lynn Reaser, chief economist for the Investment Strategies Group at Bank of America.
Some economists believe payrolls could be far stronger. "A variety of fundamental and technical factors imply that nonfarm payrolls posted their largest gain since February," said Brian Jones, an economist for Citigroup Global Markets, who expects a gain of 200,000.
"Better weather conditions during the September establishment survey period compared to those prevailing over the prior two years could provide a lift to nonfarm payrolls," Jones said. Hurricanes disrupted many jobs the past two Septembers, which means the seasonal adjustment factors will be expecting a large decline in jobs.
The payroll report will also include a preliminary figure for the annual benchmark adjustment to the work force, based on tax returns. While the adjustment will have little impact on the September gain, it could tell us whether the sharp increase in compensation in the first months of the year was due to more hiring or to large bonuses for highly compensated workers.
Other events The economic calendar is very full this week.
On Wednesday, Fed Chairman Ben Bernanke and Fed. Gov. Donald Kohn will each speak on the economy.
Construction spending is expected to fall 0.1% in August. The data will be released Monday at 10 a.m.
Domestic motor vehicle sales are expected to strengthen slightly to a seasonally adjusted annual rate of 12.6 million in September from 12.3 million in August. The automakers will report on Tuesday.
More data on the employment picture will come from the ADP index on Wednesday, the Challenger layoff survey on Tuesday and the weekly jobless claims figures on Thursday.
Factory orders are expected to be flat in August. The figures will be released Wednesday at 10 a.m.
The ISM nonmanufacturing index is expected to slip to a still strong 56.1% in September from 57% in August. The figures will be released Wednesday at 10 a.m.
Consumer credit is expected to rise by $6 billion as consumer turn back to credit cards from home equity loans. The figures will be released on Friday at 3 p.m.
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Post by Conrad Alvin Lim on Oct 8, 2006 12:42:03 GMT -4
ECONOMIC PREVIEW Words could have bigger impact than numbers Retail sales expected to look "deceptively weak' as gas prices fall[/color] By Rex Nutting, MarketWatch Last Update: 7:00 AM ET Oct 8, 2006
WASHINGTON (MarketWatch) - The economic numbers should take a backseat to the economic words in the coming week.
In addition to several more speeches from Federal Reserve officials, including new Gov. Fred Mishkin and San Francisco Fed President Janet Yellen, the markets could also pay close attention to two reports from the Federal Reserve. Those are the Beige Book of current economic conditions and the release of the minutes of the Sept. 20 meeting of the Federal Open Market Committee. Lower gasoline prices should be a big positive for the economy in the coming months, but falling prices could make some of the September data look misleadingly weak.
Retail sales are expected to rise just 0.1% in September, in large part because of the 13% drop in retail gasoline prices. The retail sales report is the most important data release on the calendar in the coming week.
FOMC minutes The FOMC minutes could create the most anxiety, with investors trying to figure out where the economy and the Fed will head next. The Fed will release the minutes at 2 p.m. Wednesday.
"We suspect the FOMC minutes will focus on the Fed's heightened concern about inflation, but at the same time show policy makers are more comfortable with an unfolding slowdown in growth," said Joseph LaVorgna, U.S. economist for Deutsche Bank.
"The minutes should sound similar" to the previous minutes, said Drew Matus, an economist for Lehman Bros. That makes sense, because the wording of the post-meeting directives and the votes were very similar on Aug. 8 and Sept. 20.
In reality, the minutes will have limited utility. The meeting was three weeks ago (nearly a lifetime!), and we've heard from several Fed officials since then, including the top two: Chairman Ben Bernanke and Vice Chairman Donald Kohn, both of whom stressed they are mostly concerned about inflationary threats. Neither of them suggested that they are in any hurry to raise rates again.
The takeaway from the Fed speakers and from the Sept. 20 FOMC statement has been that the Fed can likely hold interest rates steady at 5.25% for a while.
Beige Book The Fed's Beige Book will also be closely read for a first take on how the economy is reacting to lower energy prices, and to any signs of a recovery in the housing market. After surprising declines in both business sentiment surveys from the Institute for Supply Management, any confirmation of a drop in business confidence in the Beige Book would be significant.
The Beige Book is an anecdotal bottom-up account of the economy from the 12 regional Fed banks. It will be released on Thursday at 2 p.m.
Lynn Reaser, chief economist for Bank of America Investment Advisers, said she anticipates "a general message of moderate growth in the latest survey, with lower gasoline prices helping to spur consumer retail spending and alleviate some of the cost pressures on businesses."
The Beige Book "will reinforce the picture of a more cautious business sector and weak housing market conditions," said Brian Bethune and Nigel Gault, economists for Global Insight.
Retail sales The big number of the week will come on Friday morning at 8:30 with the retail sales report for September.
The number will be "potentially misleading," said Avery Shenfeld, an economist for CIBC World Markets. The report will be "deceptively soft," said Matus, the Lehman economist. The release will "present a misleading picture," said Stu Hoffman, chief economist for PNC.
The deception comes from the fact that retail sales are reported in nominal terms, not inflation adjusted terms. Consumers spent a lot less on gasoline last month, as the average price plunged from $3 in August to $2.60 in September.
"Look for financial markets to see through that distortion and focus on the ex-auto, ex-gasoline station figures," said CIBC's Shenfeld. Lehman expects such "core" orders to rise 0.8% in September, double August's increase.
The automakers reported a slight increase in seasonally adjusted sales in September, while chain store sales bucked a weak month from Wal-Mart to exceed expectations.
Still, "the numbers available so far haven't looked all that impressive," said Jan Hatzius, chief economist for Goldman Sachs. Anecdotally, however, the consumption environment in September was quite strong. So it should be an interesting report."
Other data The drop in gasoline prices could also have an impact on consumer sentiment. The University of Michigan's preliminary October survey comes out Friday, with economists expecting a bump to about 86 from 84.4 in September.
A similar survey by RBC Financial Group released this past Friday indicated that consumer confidence slid slightly in October. "The glow from the change in mortgage rates and gasoline has worn off," said T.J. Marta, economic and fixed income strategist for RBC Capital Markets. "People react to changes, not to levels."
The U.S. trade deficit likely declined to $66.4 billion in August from a record $68 billion in July, economists said. "Imports should be restrained by the initial impact of falling oil and gasoline prices," said David Greenlaw, an economist for Morgan Stanley. The trade figures will be release Thursday.
The drop in oil prices will also have a big impact on September's import price index, to be released on Friday. Economists expect import prices fell 1.3%.
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Post by Conrad Alvin Lim on Oct 19, 2006 5:43:51 GMT -4
Retail investors missed most of recent rally But as indexes hit records, individuals have begun piling back in By Alistair Barr, MarketWatch Last Update: 3:54 PM ET Oct 18, 2006
SAN FRANCISCO (MarketWatch) -- Flow eventually follows performance. That's how Charles Biderman, chief executive of stock-market-liquidity tracker TrimTabs Investment Research, describes the behavior of retail investors.
As equity markets rise, individuals are lured into buying more shares or adding extra dollars to mutual funds invested in stocks. By the time they've invested, the smart money -- corporations with insight into the health of their own businesses -- has usually stopped buying equities and gone elsewhere, according to Biderman.
With the Dow Jones Industrial Average breaching 12,000 points for the first time ever Wednesday, this unhappy cycle may have begun again, Biderman and others said.
Retail investors "are starting to participate, but they didn't begin until nine days ago," Biderman said in an interview.
TrimTabs estimates that $2.5 billion was put into U.S. domestic equity mutual funds from Oct. 4 through Oct. 16, with $900 million flowing in Monday alone.
But as the Dow Jones Industrial Average was rising more than 2% in September, just $2 billion flowed into U.S. domestic equity funds.
From May through August, when the Dow was testing its 2006 lows, more than $20 billion flowed out of U.S. domestic equity funds, TrimTabs calculates.
That was just the time that investors should have been putting money into the stock market, said Biderman, who noted that companies were buying back their own shares in massive amounts then.
Companies in the Russell 1000 Index repurchased $2.4 billion of their stock a day during the third quarter and $2.2 billion a day in the second quarter, according to TrimTabs estimates. That's up from $1.8 billion a day during the fourth quarter of 2005.
"Companies have been heavy buyers as the market begins to go up," while retail investors have been sellers, Biderman said. "Individuals invest with their hands on the steering wheel, their foot on the gas and their eyes on the rearview mirror."
Others have taken note of retail investors' reluctance to get more involved in the U.S. stock market, despite recent gains.
Charles Schwab & Co. (SCHW : 16.79, +0.08, +0.5%) , one of the largest discount brokers, said this week that it hadn't seen a big rush into the market from individual investors.
"The rise in equities did not translate into a lot of trading revenue," Schwab Chief Financial Officer Chris Dodds said. "We're not seeing retail investors getting enthusiastic. They haven't jumped into equities."
In late September, Goldman Sachs analysts trimmed third-quarter earnings estimates for online brokers TD Ameritrade (AMTD : 17.28, +0.29, +1.7%) , E-Trade (ET : 22.80, -0.27, -1.2%) and OptionsXpress (OXPS : 29.05, +0.36, +1.3%) because September trading hadn't been as strong as they had forecast.
The U.S. stock rally in early October wasn't the result of money flowing into traditional mutual funds, top Banc of America Securities strategist Thomas McManus said in a Monday note to clients.
More than $1.1 billion flowed out of domestic equity funds in the week ending Oct. 11. A week before, more than $1.5 billion left those U.S. equity funds, McManus noted.
"At big turning points you typically find retail, and even big institutional investors, leaning the wrong way," McManus said in an interview on Wednesday.
Still, retail investors have participated in the recent market rally through their big investments in overseas equity funds, McManus said.
"Almost every dollar that has left domestic funds has been picked up by overseas equity funds," the strategist said. "Equities haven't been losing retail money, but, as the S&P 500 has provided poor returns over the past five years or so, investors have moved into international and emerging markets and other alternatives."
But if large-cap U.S. stocks continue to perform well, retail investors could rotate more back into domestic equity funds, he predicted.
Indeed, TrimTabs' Biderman expects retail investors to pile into U.S. domestic equity funds during the rest of 2006, he said.
That new money, combined with continued strong share buybacks by companies and a lack of big initial public offerings, should propel the U.S. stock market higher, possibly through the end of 2006 and into early next year, he said.
Biderman thinks investors should be buying growth stocks in the technology sector now, he said.
But the gains may not last long and will likely come to an end when companies stop buying their own shares and begin selling more, he predicted.
By early 2007, investment banks may begin to capitalize on the stock market's strength by taking more companies public again, underwriting more new share sales, Biderman said.
"When companies are buying back more of their stock than they are selling, the equity market has gone up every year since 1994," Biderman noted. "The end of the rally will come when companies decide to stop buying and start selling."
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