Friday, August 01, 2014

Friday's equity market tempers yesterday's freefall

Compared to yesterday, the equity market was relaxed today.  There was volatility that led to some midday uncertainty, but the day ended with the Dow down .42%, S&P down .29%, Nasdaq down .39%, mid-cap 400 down .11%, and extended market small caps down .24%.  That was welcome news after yesterday, and as good as could be reasonably expected after retail investors and some smaller leveraged hedge funds had the bejesus scared out of them yesterday.

While not reading any reports today or following CNBC, Bloomberg, or any other media outlets, just looking at the group of 75 or so stocks that are followed closely here, it is clear that financials were the one area that took it on the chin.  Bank of America, American Express, JPMorgan, Goldman, Citigroup, and U.S. Bancorp were all down from 1.7% to 1.8%.  The only outlier among the major banks was Wells Fargo which was just down 1.1%, still down obviously.  Investors are apparently expressing their concern over the possibility of higher rates in the future that would make the yield curve less generous to these banking concerns.  While few small banks are followed here, the two that are were down 1.2%.

Other sectors of note were energy stocks, which were tepid to down at best due to an outlook for lower oil prices, and the technology sector, which had a decidedly mixed performance.  Stocks with extremely high valuations continued to decline, albeit modestly relative to yesterday, while more mature tech companies with strong balance sheets regained a portion of yesterday's losses.

It seems as if we may again be entering a period in which the price action in the bond market will once again have an important impact on the stock market outlook.  That would be overcome only if real economic growth became more sustained, not economic and earnings growth driven by further cost cutting, stock buybacks, and efficiencies but economic growth that comes from revenue growth and heightened capital investment.

One could begin to muse about the impotence of Congress and its inability to pass any long term infrastructure spending that is both needed for long term economic progress and would provide decent jobs for many seeking to join or stay in the middle class.  That is not possible now, as digesting my Gonzo's Shrimp Veracruz burrito and bowl of chili has satisfied me to the point of relaxation and lanquid fatigue such that only quiet reading in a comfortable chair can provide any motivation now.


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