Friday, February 09, 2007

Market tumbles on talkers' heads

Today the U.S. equity market took a sharp turn down. During the course of the market day on CNBC, Bloomberg radio, and various market websites many reasons were given for the decline by people with authoritative voices and nothing better to do during the market day than flack for their firms. Some of those reasons were:
---MasterCard said that it would not raise interchange fees again anytime soon and the MasterCard stock decline was leading the market down--- Hmm. MasterCard was up over 200% since its IPO in March, it was trading at a 27 p/e, and it doubled street estimates for the quarter. They will not raise fees soon and the stock was down 7 or 8%, but it was priced for perfection and some. It had absolutely nothing to do with the broader market.
---Micron Technology reported that their semiconductor chip prices would decline dramatically in the coming quarter due to market conditions, and that was driving technology stocks and the overall market down---They did say that, and it likely did have some impact on technology stocks, especially semiconductor stocks. While saying that pricing was a "disaster", the Micron spokesman also said that Micron boosted production during an industry glut. On top of that Micron has always been focused almost completely on the commodity end of the chip market that is most vulnerable to any slowdown or pricing pressure. This is an issue but it is a semiconductor industry issue and in many ways a company specific issue. It doesn't tank the market.
---Oil prices are up on Nigerian unrest and colder weather and that's pushing the market down---Oh come on, oil prices are still 25% below last year's highs and everyone expects some volatility there. Oil and oil service stocks needed a little bump anyway. That's not it.
---The Dallas Fed Governor said in a presentation that the Fed "would not rule out rate hikes if inflation gets out of hand", and the market is in free fall on rate concerns---What else would a Fed Governor say. Of course the short term message in this is that there is now almost no chance of rates being cut in the coming months but that's modestly incremental news. It doesn't push the sell button on the market.

I'm sure that there were more of these insights during the day that I missed. While on a negative day any negative news counts so in a sense each of the above reasons has a little validity, with little being the operative word. When the people doing the work, managing portfolios and manning the trading desks were finished for the day, the primary reasons for the day's action surfaced. They were:
---Concerns about the subprime mortgage market, any contagion effect on prime mortgage or credit card portfolios, and the overall effect on financial firms. Financial firms represent over 25% of the S&P 500 and over 20% of the Wilshire 5000. Uncertainty in this big sector is not welcomed by the market, and yesterday's post here on ENS gives more details.
---The market is ripe for a correction(see 1/20 ENS post "Can't get any better"). Bob Doll, CIO of Blackrock, said tonight on Bloomberg that "we have been through the longest time in 50 years without at least a 2% pullback". So that is what it has felt like since July and he would know the statistic. The consumer credit issue is front and center, and it raises uncertainty. Investor expections are high and any miss of an earnings estimate by a company, even if the analysts had become overexuberant, is punished severely. Look at AOI and ENG today, two small caps that missed by a little and fell by a lot.

What's the message. Those are the two main reasons that there is pressure on the market and intraday chatter is just that.


Anonymous Anonymous said...

Right on the daytime talkers, but the biggest issue now is the concern that the Fed could decide to raise rates to combat inflation at the same time that consumers with debt are under pressure already. Obviously that would exacerbate the problem.

2:19 PM  

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