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

[ASusilovic]

Quote from Topsurfi:

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.

Not if we have created a stock market bubble until then ! You know that sort of "wealth creation" we need in order to sell theses unsold stockpiles of foreclosed houses to hummmm...."real estate buyers"

 

[circadian]

Quote from ByLoSellHi:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aGDhz5w8ODrY

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.

‘Challenging’

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 lthomasson@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net
Last Updated: July 1, 2009 10:23 EDT

You can't fight the Fed. They've already proven that they will do everything possible to prop up this nation's "confidence." ; )

 

[makloda]

Quote from Landis82:

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.

I was wondering the same thing. How is the "certain knowledge" of the recession being over (or not) going to make Kneale and his viewers money? What's the trade?

Long CL? Long ES? Short ZN? Long AUD/CAD/NZD? Long HG?

The recession could well be over and all the above trades could still backfire over the next quarter.

 

[makloda]

Quote from Topsurfi:2010 will be tough again for bulls when we will see USA loosing AAA and economic stimulus vanish.

Who knows, the rating outlook change on UK debt turned out to be bullish for the FTSE100 and GBP

 

[EdgeHunter]

Quote from circadian:

You can't fight the Fed. They've already proven that they will do everything possible to prop up this nation's "confidence." ; )

Yes, the FED has always won in the past... but now this time... unlike every time before... has completely GONE ALL IN... and i think she's going to lose and lose big... over the next 5 to 10 years.. and not even be the same institution as before...

 

[Roman Candle]

If the fed would stop micro managing our economy we would get thru this much quicker. Sure the markets may have gone down to Dow 5000, that would have been the buy of a lifetime. But know the fed had to supply banks with capital to prop up the markets, now we get to muddle along at inflated levels.

This is not a free market economy; they have never given the free market a chance to work. The fed always jumps in and screws everything up.

 

[circadian]

Quote from EdgeHunter:

Yes, the FED has always won in the past... but now this time... unlike every time before... has completely GONE ALL IN... and i think she's going to lose and lose big... over the next 5 to 10 years.. and not even be the same institution as before...

Can you truly go "all in" when you produce the chips?

 

[ByLoSellHi]

Quote from circadian:

Can you truly go "all in" when you produce the chips?

Depends how much patrons (i.e. other countries) value those chips.