After holding their ground overnight the S&P futures tanked to the lows for the month at 1031 when the bombs went off in Istanbul, Turkey. They recovered slightly but were hit again at the open when the White House was evacuated with what was said at the time to be an airspace violation. Again we hit the lows at 1031 but traders bought the dip. After struggling higher all day the fear of darkness came back and traders headed back to the bomb shelters by the close.
Jobless Claims fell sharply for the last week at only 355,000 and -10,000 under the consensus estimates. The prior week was revised up +4,000 to 370,000 making this weeks number even better. This was the lowest claims number since Feb-2001 and one month before the recession began. There is strong speculation that a third 13-week extension of benefits will be passed by Congress before the Thanksgiving break. It is strange that although the claims went down there were only six states reporting a decrease in claims. 47 states and territories reported a rise in claims.
Not so good news came from the Philly Fed Survey, which fell from 28.0 in Oct to 25.9 in November. The main reason for the decline was a huge drop in the New Orders component to 20.8 from 29.0. Remember my theory that the orders from the last three months were for holiday merchandise and those orders were over. That is still just a theory but we are watching the numbers play out to see if it fits. Other components that fell included employment, hours and prices received. Inventories also fell to -11.5 from -2.5 and this is the lowest level in over six months. While prices received went down prices paid rose sharply. Shipments also slowed. This was not a positive report despite the positive headline number. The trend definitely dipped in November but then October was a blowout over September so some pull back was expected.
Monthly Leading Indicators rose by +0.4% and last months -0.2% decline was revised to zero. The main reason for the gains was the decline in the Jobless Claims and a larger spread in interest rates. Since this is an indicator that is derived from other indicators the impact on the market was minimal.
The mutual fund scandal continued with charges being filed against the founders of the PBHG funds. Fidelity and John Hancock received subpoenas for trade data but both raced to remind investors that just having investigators look at records does not mean there were any problems. Despite the fund outflows from funds in trouble there was still a net inflow for the week of +$3.7 billion into stock funds according to TrimTabs.com.
The GE saga I mentioned on Tuesday started a new chapter when GE warned that they would not hit prior estimates for 2004 due to lower profits in the power division and higher employee costs. They did say that they expected to return to double digit growth in 2005. They offset this bad news with good news that they were spinning off their slow growth insurance business and investors bought the story. The stock bounced to $29.50 on the initial news before sliding back under $29 by Thursday's close. This three day spike by GE has helped the Dow keep its head above water but the global news today finally dragged it under again.
HPQ announced earnings last night and beat the street by a penny and upped estimates for the future. While the news did not help HPQ which closed down -62 cents it did help power the Nasdaq to a gain for most of the day. Also helping the Nasdaq into the green were comments from Intel that they saw relatively robust semi growth for 2004. Help also came from the Semi Book-to-Bill number Wednesday night at 1.00. This was the first time in over a year that semis received one dollar in orders for every dollar shipped. Orders jumped +12% in October. Much of the increased chip demand is coming from consumer electronics not just computers.
Offsetting this tech bullishness was cautious comments from Intel CEO Craig Barrett. He said the U.S. was the laggard in terms of global growth. He said emerging countries saw IT growth of +15% in the 3Q but the U.S. growth was only +3% as well as only +3% in Europe. He said there was no data to suggest the U.S. IT spending was recovering. He said he thought there was improvement based on anecdotal stories but he could not prove it. Barrett was optimistic but he was cautious in his comments.
The Fed heads were out in force again. Greenspan headed the list with comments that "creeping protectionism" must be stopped and reversed. He was referring to the tariffs and trade sanctions reported recently. He was joined by Moskow and Poole who made similar comments in different speeches. Economists feel that politicians have good intentions but sanctions sometimes backfire when other countries begin choosing sides. Countries tend to vote with their orders for new products and they will place those orders elsewhere if their exports are being restricted.
Moskow went on to say that the economy remained in long term fiscal trouble but it was currently improving. He suggested we were a long way from any inflation worries and a long way from any Fed rate hikes.
The markets tried very hard to hang on to higher ground with the Dow trading as high as 9726 and over the 9700 hurdle once again. The Nasdaq turned positive at 10:20 and remained in positive territory until after 3:PM. Unfortunately the fear of darkness took hold and the Dow ended down -71 points and at a low for the month. The Nasdaq dropped -17 points and also closed at the low for the month. Both indexes are now well below their 50 DMA (9653 and 1903) and are threatening to take out significant support.
The Dow support at 9600-9625 has held for a week but the close at 9619 is very threatening. Should this level break there is a good chance of testing 9500 very quickly. If the worst came to pass we could see 9250 as the next significant level. The Nasdaq is much closer to support at 1875 with backup support at 1800.
The market is not reacting to any economic news or any real pressure on stocks. It is reacting to the terror threat and the mutual fund scandal. Money is being rotated to different fund families in record amounts and while those withdrawals are being offset by deposits at other funds the impact to the market is seen in the churn. It is tough to push higher with fund selling offsetting fund buying. If we assume that is a neutral based on the net inflows of +$3.7 billion over the last week then the real problem remains the terror threat.
The four bombings in Turkey in recent days as well as numerous threats of coming attacks on U.S. assets has investors running scared. While the bombings overseas are very bad news they don't directly impact the U.S. markets. The worry is that eventually there will be an event in the U.S. and with every new bombing overseas that same event here is seen as drawing closer to reality. With the end of Ramadan not until next Tuesday the fear is concentrated into the next five days. Once Ramadan is over and the markets break for the Thanksgiving holiday we should see that fear begin to fade.
There are no material economic reports on Friday with the Internet E-Commerce sales at 10:AM and ECRI Weekly at 10:30. The key will be any overnight terror activity. Futures are flat as we await the opening of the Nikkei. The index rebounded last night but had closed just prior to the Turkey bombings. Odds are good the index will test the 3-month lows from yesterday once again. Warnings have gone out to westerners overseas to avoid public places and places where other westerners may gather. Britain also warned this afternoon that their was evidence that more attacks against them were imminent. Not a good atmosphere going into the weekend. Since the market is being news driven but still fundamentally sound I still feel this is a buying opportunity but I would want to wait until Tuesday to spend any real money. Taking a lottery play here and there on the dips should satisfy your gambling urge but don't get carried away until next week.
Enter Very Passively, Exit Very Aggressively!