A funny thing happened Friday as Wall Street reacted to the terrible jobs report. To be sure, the permabears were dancing in the Street as the Dow industrials plunged 280 points after the Labor Department reported a disappointing increase in payrolls during September and sharply lowered the original increases reported in July and August. All of a sudden, something flipped a switch and the markets did a U-turn, recovering all of the loss and actually finishing the session with a gain of 200 points. Some would say the early decline was climactic, a dramatic, powerful dip that appeared to be bottomless. That, of course, is usually where rallies begin.
Well, I guess you can write off any interest rate hike by the Fed later this month. The terrible jobs report released this morning for September, and a dramatic revision to the August report, show the economy is a long way from robust. And, no matter how much Fed chair Janet Yellen and the gang want to raise rates, the news is just too bleak to move away from zero at this time.
Trying to apply logic to the stock market, economy and the actions of the Federal Reserve can be a very big mistake. And the actions of the past week make that very clear.
A storm of biblical proportions. Believe it or not that is the way a CNBC weather forecaster referred to the slow-moving hurricane, Joaquin. Of course, you would expect nothing less from anyone at CNBC whether they are trying to scare investors or people planning for the weekend. My best guess is the forecaster doesn't know what a storm of biblical proportions really means. Does the concept of 40 days and 40 nights of rain sound familiar? Yes, it will likely rain for a day or two along the eastern seaboard, which will leave it about 38 days short of something biblical.
A headline at MarketWatch.com -- owned by the Wall Street Journal -- blared the message, "September 30 historically year's worst day for stock market investors." Well, we have a long way to go but this September 30 is off to a pretty darned good start, up more than 200 points. To be sure, this month and the entire third quarter of 2015 have been terrible. We are officially in correction mode, with the major indexes down slightly more than 10 percent. Remember, a correction is a long way from a bear market.
Could we please get done with September?! The media, of course, is thrilled with excitement over the deep declines we have seen this month, historically the worst month of the year. Yes, we are officially in correction mode, with the major indexes off more than 10 percent from the most recent highs. But I'm reminded of the adage, "Buy in October, sell in May." For traders -- not investors -- that suggestion has proved very accurate in 2015. Although October is known for its crashes in 1929 and 1987, it really isn't all that bad.
The Wall Street roller coaster continues to be a wild ride. Things looked real good on Friday with the Dow industrials up nearly 300 points during most of the session. However, some profit-taking cut the gain to just 114 points at the close. That set the stage for more selling this morning with the blue chip index falling another 150 points. Keep in mind the major market indexes are only off about 5-6 percent through the first three quarters of 2015. When you consider the markets are up about 220 percent since bottoming in March 2009, I guess a 5 percent correction is not the end of the world, as many are suggesting.
Stocks are opening sharply higher this morning after a near miss yesterday. The Dow industrials had been down nearly 300 points in Thursday trading but rallied back to finish with a loss of just 78 points. The index gained nearly 200 points at the start today after Fed chair Janet Yellen said last night the Fed would begin raising short-term rates by the end of the year. If, indeed, they announce an increase it would most likely happen at a regularly scheduled meeting in either October or December.
A report last week from the Federal Reserve showed household net worth -- assets minus liabilities -- in the second quarter of 2015 rose to a record $84.9 trillion. While the stock market moved sideways, if not lower, in the three-month period there was a $503 billion increase in the value of residential real estate.
Stocks are on a slippery slope right now. The Dow industrials have been down in four of the past five sessions and things are looking rather bleak this morning. Sam Stovall of S&P Capital IQ said even though the Fed did not raise interest rates last week they did manage to elevate uncertainty and volatility. "In the past 30 days, the S&P 500 experienced intra-day high-low price action in excess of 1 percent 23 times, equal to the sum over the prior four months," said Stovall, who believes the market could re-test the recent lows but will not fall into a bear market.
Just as tides flow in and out, so do stock prices go up and down. It seems every rally on Wall Street is followed immediately with a decline. Monday saw the Dow industrials gain 125 points followed by a 180-point decline yesterday. Things are off to a quiet start today as investors wait for tomorrow's speech by Fed chair Janet Yellen and the anticipation that she may clear up some of the many concerns people have about the recent decision to leave Fed interest rates unchanged.
Get ready for a long October. Sure, we still have a few days left in September and the markets continue to move in large swings both up and down. But the fact the next meeting of the FOMC isn't until the very end of next month means we will have to tolerate verbal barrages about what the Fed is doing right and what it is doing wrong, not to mention what the Fed should or should not do when it meets. Throw in the never-ending debate about China and you've got the perfect formula for a choppy and testy October.
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