Sign in
Become a MarketWatch member today
David Weidner's Writing on the Wall
Aug. 3, 2010, 4:05 a.m. EDT · Recommend (10) · Post:
View all David Weidner's Writing on the Wall "º
"¹ Previous Column
Financial reform for the rest of us
First Take "º
Research In Motion goes after Apple's iPhone
By David Weidner, MarketWatch
NEW YORK (MarketWatch) -- The stock market looks pretty attractive right now, but it's a spooky beauty not unlike that vacant resort where Jack Nicholson stayed in "The Shining."
The S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,122, -3.94, -0.35%) surged 7.7% in July, and Monday's rally -- fueled by European bank earnings, especially HSBC Holdings PLC /quotes/comstock/13*!hbc/quotes/nls/hbc (HBC 53.17, -0.57, -1.06%) -- kept the momentum going on the first trading day of August.
Warner Bros. "Here's Johnny!" Jack Nicholson in The Shining.
As MarketWatch's Mark Hulbert reports, August has historically been a great month for investors. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,651, -23.31, -0.22%) has returned 1.3% on average for the month since 1896. Only July has a better record at 1.4%, Hulbert notes.
"The odds are more in your favor if you place that bet during August -- rather than waiting until the entire trading community is back at their desks in September," he wrote. Read Mark Hulbert's column on August investing.
Greece shmeece. We're going to be rich.
Ah, were it only true. But just as that uninhabited resort made the Torrance family begin to see things, a Wall Street summer rally without investors looks suspicious. Are we really seeing gains or ghosts? And how does this movie end? With a bloodbath? Or are we just going to be left staggering in the cold?
Consider that trading volume across the exchanges was at a low for the year in July. CME futures, ICE futures, NYSE Group Inc.'s /quotes/comstock/13*!nyx/quotes/nls/nyx (NYX 29.95, +0.01, +0.04%) European futures all slumped. U.S. cash equity volume was 8.2 billion shares a day in July, down 12.2% from June and down 6.8% from July 2009.
Though trading historically does slow during the month, the lack of activity is striking in an earnings month, according to a report issued Monday by analyst Richard Repetto at Sandler O'Neill & Partners.
"Summer seasonality would suggest things get worse before they get better," Repetto concluded.
The listless trading volume underscores what we've been hearing from the big Wall Street brokerages. Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 153.51, +0.77, +0.50%) and J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 41.07, -0.57, -1.36%) reported flat to lower trading revenue, disappointing analysts and confirming that investors were staying on the sidelines.
Those left behind were evacuating. Since the start of May, investors have pulled $40.7 billion from domestic equity funds. That's 12 consecutive weeks of outflows, according to Investment Company Institute.
And why wouldn't they head for the exits? Earnings season was OK, but there's a clear feeling that the second quarter and the good tidings it brought are history now.
Moreover, the robust year-over-year gains -- 20% in the second quarter of 2010 compared to the second quarter of 2009 -- look better because of weak comparables. Revenue, or top-line growth, remains sluggish, suggesting cost-cutting is still driving the bottom line. Read David Moenning's analysis on Seeking Alpha.
Investors are looking for clues in corporate earnings. Mark Hulbert helps you get through the summer with your profits intact.
Economic data look mixed at best. Gross domestic product rose just 2.4% during the quarter. The manufacturing-based ISM index slowed to 55.5 in July, a rate that shows expansion, but at a slower pace and consistent with "an economy that is stuck in low gear," according to Steven Ricchiuto, chief economist at Mizuho Securities.
Then there are the statistics we all know too well. Unemployment is 9.6% and not improving. The S&P Case-Shiller home-price index rose slightly in May, but not enough for analysts to pronounce a recovery.
"A broader look at home-price levels over the past year still do not indicate that the housing market is in any form of sustained recovery," S&P said in its report. Read S&P Case-Shiller report.
Add to it Alan Greenspan's prediction Monday that we could be in for a double-dip recession if the economy doesn't start picking up soon. Caveat: Take the wrong-way former Fed chairman's comments for what they're worth. Read story on Greenspan's comments.
So, if the fundamentals are so weak, why is the market rising and why is there optimism that August may bring more gains? The answer may have something to do with Europe, where banks received a largely clean bill of health from European Union authorities. Europe hasn't seen a sovereign-debt crisis, even though many banks there can't borrow anywhere except the European Central Bank.
As mentioned, earnings were OK in the second quarter in the U.S. and abroad. And financial reform is now a reality, removing a fear of the unknown for the U.S. banking sector.
But really, it's hard to argue there's any strong reason for optimism. People are still out of work. Companies are still leery of new investment. Deflation, as The Wall Street Journal reported Monday, is becoming a reality if some of the best-known fund managers are to be believed.
It's as if those investors still playing the game are doing so in their own world -- one cut off from the real world where the rest of us live. The recent rally has the feel of a bad case of cabin fever. To twist the words of Jack Torrance, the villain played by Nicholson, all trading with no fundamentals makes Jack a poor boy.
Investors would be wise not to end up a victim should August's delusions turn into a horror story come October.
David Weidner covers Wall Street for MarketWatch.
David Weidner is the Wall Street columnist for MarketWatch. He formerly covered M&A and financial services at The Daily Deal, American Banker and Dow Jones. He writes the Writing on the Wall column which appears Tuesday on MarketWatch and Thursdays on WSJ.com. He also is a regular contributor to the News Hub.
Research In Motion Ltd. is making a direct assault on Apple Inc.'s iPhone turf, and the battle has only just begun.
12:58 p.m. Today12:58 p.m. Aug. 3, 2010 | Comments: 5
- tarn | 11:59 p.m. Aug. 2, 2010
"Houlihan Lokey looking good today for business it turned down in 2007. http://bit.ly/9xxMlr" 11:25 a.m. EDT, Aug. 3, 2010 from davidweidner
"Schumer, Shelby, Gillibrand, Kirk biggest recipients of Wall Street campaign cash. http://bit.ly/amgDAd" 11:16 a.m. EDT, Aug. 3, 2010 from davidweidner
"Rally without a cause. http://bit.ly/clTjvA" 6:41 a.m. EDT, Aug. 3, 2010 from davidweidner
"RT @Kelly_Evans: RT @davidmwessel: For an x-ray of Fed's $2.3 trillion balance sheet see this #wsj chart http://on.wsj.com/bWtv9p @wsj_econ" 6:39 a.m. EDT, Aug. 3, 2010 from davidweidner
"David Weidner's Writing on the Wall: A rally without a cause: The stock market looks pretty attractive right now, ... http://bit.ly/c6JSIX" 12:17 a.m. EDT, Aug. 3, 2010 from davidweidner
The Technical Indicator
S&P 500 clears major resistance, sans volume
Tech Tales
Think of Microsoft as more like China
Read Full Article »