Despite a late-afternoon rebound, all three major indexes finished the session lower. The S&P 500 dropped in each of the trading sessions of this holiday shortened week and ended lower by more than 6%. Although the equity market has broken its November lows or is close to do so in the case of the S&P 500, credit markets in general are faring much better compared to last November or October. Investors are not rushing into the safest assets such as 3-month T-bill this time. Riskier assets such as investment grade corporate bonds and high yield bonds are also doing much better. The TED spread, which measures the difference between LIBOR and T-bill yields, remains below 100 bps while it surpassed 450 bps back in October. A stable credit market is essential to any economic recovery. 
Let’s take a look at the three key indicators: 1. VIX: closed at 49.30 compared to 47.08 yesterday; 2. The euro/yen cross: closed at 120 compared to 119 yesterday; 3. The TED spread: closed at 99 bps compared to 95 bps yesterday.
All 10 major sectors finished the session lower led by energy and industrials. The CRB commodity index dropped 1.3%. The US dollar was lower against most major currencies. Treasuries rallied with the yield curve flattened. The three-month US LIBOR closed at 125 bps. The VIX index rose 2 points. The market breath was negative on both NYSE and Nasdaq. The volume was on the heavy side due to option expiry activities. Over 1100 issues hit fresh new lows.

The Dow became the first major index that closed below its November low. At 7465, the 113-year old index was at its lowest level since October 2002. A further 180-point drop would take it to the lowest level since October 1997. In other words, most people are losing money by investing in equities during the past eleven and half years. We have some other periods in history that offer little return to investors for a long period. For example, the Dow first broke 1000 level in February 1966. It took the index 15 years to truly stand above that level. Then we have the granddaddy of all bear markets – the Great Depression: The Dow peaked at 381 on September 3, 1929. It didn’t have a chance to re-visit that level until 25 years later or November 23, 1954 to be precise. But the good news is that if investors can survive those painful periods, history shows that they would be rewarded handsomely in the years to follow: For instance, after going nowhere between 1966 and 1981, the Dow rose 10-fold in the next 18 years.
Let’s take a look at the three key indicators: 1. VIX: closed at 47.08 compared to 48.46 yesterday; 2. The euro/yen cross: closed at 119 compared to 118 yesterday; 3. The TED spread: closed at 95 bps compared to 95 bps yesterday.
Most major sectors finished the session lower led by financials and technology. The CRB commodity index rose 2.3%. The US dollar was little changed against most major currencies. Treasuries dropped with the yield curve steepened. The three-month US LIBOR closed at 125 bps. The VIX index dropped 1 point. The market breath was negative on both NYSE and Nasdaq. The volume was neutral. Over 600 issues hit fresh new lows.

The market had a relatively quiet session following yesterday’s slump. The Dow, after spending equal amount of time above and below the unchanged level, closed the day higher by three points – now it needs a four-point drop to take it to a 6-year low. Most economic news came worse than expected with housing starts hitting a fresh record low. Ironically, the worse-than-expected housing data are helpful in a sense that investors are going set their expectation to the troubled sector so low that any improvement from the current level can be viewed as positive. Separately, the Fed introduced a long-term US inflation estimate, which may have a long-term impact to the Fed policy going forward - the latest move may suggest that the Fed is going to weigh more on inflation than growth in the future like their counterparties in Europe. For now, inflation is not a big concern as the latest data show import price has dropped over 12% over the past 12 months and commodity prices as measured by the CRB index has dropped over 60% from its peak. But as economy starts to recover in 2010, we should pay close attention to any sign of inflation. 
Let’s take a look at the three key indicators: 1. VIX: closed at 48.46 compared to 48.66 yesterday; 2. The euro/yen cross: closed at 118 compared to 116 yesterday; 3. The TED spread: closed at 95 bps compared to 97 bps yesterday.
Most major sectors finished the session little changed. The CRB commodity index dropped 1.3% and closed at its lowest level since November 2002. The US dollar was mixed against most major currencies. Treasuries dropped with the yield curve flattened. The three-month US LIBOR closed at 125 bps. The VIX index was little changed. The market breath was neutral on both NYSE and Nasdaq. The volume was neutral. Over 600 issues hit fresh new lows.

The market tumbled after the long weekend and closed at the lowest level since last November. In fact, one more point drop in the Dow would bring it to the lowest close since March 2003. Worsening economic outlook served as a main reason behind today’s drop. Based on recent economic data, the global economy is suffering its worst decline in the post-WWII era. The stock market once again proved to be a good forward-looking machine as the benchmark index last year suffered its biggest losses in seventy years. Back in December, we talked about the possibility that the market lows touched in November could be the lows for the financial crisis unless the economy is sinking into another “Great Depression”. Although many economic indicators are pointing to that direction, I think the odds of entering into a prolonged depression are low – today’s monetary and fiscal policies are dramatically different from those in early 1930s.  
Let’s take a look at the three key indicators plus the iTraxx CDX credit indicator: 1. VIX: closed at 48.66 compared to 42.93 on Friday; 2. The euro/yen cross: closed at 116 compared to 118 on Friday; 3. The TED spread: closed at 97 bps compared to 95 bps on Friday; 4. The iTraxx CDX composite spread: closed 728 bps – the highest level in two months – compared to 679 in the previous week. The jump in the credit spread indicated continuing stress in the credit market.
All 10 major sectors finished the session lower led by financials and energies. The CRB commodity index dropped 4.6% and closed at its lowest level since November 2002. The US dollar was higher against most major currencies. Treasuries rallied with the yield curve flattened. The three-month US LIBOR closed at 125 bps. The VIX index jumped 5 points. The market breath was negative on both NYSE and Nasdaq. The volume was neutral.

Market is closed.