The market finished the last trading session of week in a mixed way. For the week, however, all three major indices were down sharply with the S&P 500 posting a loss of 7%. Merely two months into 2009, the market has already given up more than 24% of its market cap, extending its loss to over 55% since October 2007. The unemployment rate, meanwhile, surged to 8.1% after nonfarm payroll fell 651K in February. Based on the current pace, the unemployment could surpass 10% before the summer ends. Although many investors have lost faith in the stock market, history shows us that for those with long time horizon, it is not a bad time to stick to the market a little longer now. Many investors like to compare the current market to the Great Depression period. One fact some may miss is if one bought stocks in January 1931 after the Dow declined 50% from its 1929 peak, he or she would be doing well in the next decade as bonds, real estate, commodities and cash all lagged the Dow with dividends reinvested. And that was one of the worst decades in terms of economic performance in the US history.
Let’s take a look at the three key indicators: 1. VIX: closed at 49.33 compared to 50.17 yesterday; 2. The euro/yen cross: closed at 125 compared to 123 yesterday; 3. The TED spread: closed at 111 bps compared to 108 bps yesterday.
Around half of the major sectors finished the session higher led by energy and basic material. The CRB commodity index rose 1.5%. The US dollar was mixed against most major currencies. Treasuries were little changed. The three-month US LIBOR closed at 129 bps, the highest in two months. The VIX index was little changed. The market breath was neutral on both NYSE and Nasdaq. The volume was on the heavy side. Over 1600 issues hit fresh 52-week lows on NYSE and Nasdaq.

The market tumbled more than 4% for the second time this week amid renewed concerns over the health of financial industry and automakers. The S&P 500 is now down over 56% from its peak in October 2007, the second worst drawdown for the index since its 86.2% drop from the Great Depression. Shares of the Citigroup, once the largest bank in the world by market cap, dropped below $1 in today’s trading. Fear dominates the market sentiment as few investors are willing to step in to take long term equity positions. The latest sentiment survey from American Association of Individual Investors (AAII) showed a new all-time high in the percentage that expects the market to continue to decline. The reading of 70% exceeded the previous record of 67% during the week of October 19th, 1990, which happened to be the week the S&P 500 ended its decline for that cycle. Yesterday I mentioned that there is only one other time that the S&P 500 have been down for 11 of the past 12 days since 1971. That other time was August 10, 1982. Coincidently, the market also  formed its bear-market bottom for that cycle two days later.
Let’s take a look at the three key indicators: 1. VIX: closed at 50.17 compared to 47.56 yesterday; 2. The euro/yen cross: closed at 123 compared to 125 yesterday; 3. The TED spread: closed at 108 bps compared to 103 bps yesterday.
All 10 major sectors finished the session lower led by financials and transportation. The CRB commodity index dropped 2.3%. The US dollar was higher against most major currencies. Treasuries rose with the yield curve flattened. The three-month US LIBOR closed at 128 bps. The VIX index rose 3 points. The market breath was negative on both NYSE and Nasdaq. The volume was on the heavy side. Over 1500 issues hit fresh 52-week lows on NYSE and Nasdaq.

The market rebounded today after falling in eleven out of the past twelve sessions, a streak that happened only once since 1971. However, the lack of participation in financial issues indicated that a true bottom may not be found yet. One cannot expect economy to start a full recovery unless financial institutions are stabilized. There are two potential catalysts that may help achieve such a job in the near term. First is a temporary suspension of mark-to-market accounting rules, or FAS 157. Although FAS 157 provides investors with more accurate information about what assets held by financial institutions are worth under normal periods, it could force those institutions to make huge write-downs when the market for the assets in consideration is distressed. This has been the case for the sub-prime crisis that started two years ago. Financial institutions loaded with mortgage-backed securities cannot find buyers and have to make huge write-downs, which further depressed those asset prices. Congress is going to hold a hearing on March 12th regarding the rules. The second catalyst is the “stress test” to the largest financial institutions, which is expected to finish by the end of next month. If most companies come out declaring they have successfully passed the test and have no need of any further capital assistance from the government, investors may feel more comfortable of owning the shares of those companies. Until then, investors find little reason to bid up the troubled sector.
Let’s take a look at the three key indicators: 1. VIX: closed at 47.56 compared to 50.93 yesterday; 2. The euro/yen cross: closed at 125 compared to 123 yesterday; 3. The TED spread: closed at 103 bps compared to 101 bps yesterday.
Most major sectors finished the session higher led by basic materials and energy, the two beneficiaries of speculation that China is going to announce another massive stimulus package. The CRB commodity index rose 3.8%. The US dollar was lower against most major currencies. Treasuries declined with the yield curve steepened. The three-month US LIBOR closed at 128 bps. The VIX index dropped 3 points. The market breath was positive on both NYSE and Nasdaq. The volume was on the heavy side.

The market retreated modestly following yesterday’s sharp drop. The S&P 500, which was lower in eleven out of the past twelve sessions, closed below 700 for the first time since Oct 1996. In a day with little market-moving headline news, I would like to bring your collective attention to one stock - GE. Having lost over half of its market cap since the beginning of this year, the company is treated as if it would be out of business tomorrow. Believe it or not, GE is one of the only four stocks that remain among the top 10 market cap companies in the past half century until recently. For those curious, the other three are IBM, Exxon and AT&T. Will GE regain that prestigious title before 2009 runs its course? We will wait and see. All top 10 market cap companies in each of the end of the past decades along with today’s top 10 are listed below. From the rise and fall of some of Corporate America’s biggest names, one can get a taste of what “creative destruction” is really about.

Let’s take a look at the three key indicators: 1. VIX: closed at 50.93 compared to 52.65 yesterday; 2. The euro/yen cross: closed at 123 compared to 123 yesterday; 3. The TED spread: closed at 101 bps compared to 104 bps yesterday.
Most major sectors finished the session modestly lower led by utilities and industrial. The CRB commodity index rose 1.7%. The US dollar was higher against most major currencies. Treasuries were little changed. The three-month US LIBOR closed at 127 bps. The VIX index dropped 2 points. The market breath was negative on both NYSE and Nasdaq. The volume was on the heavy side.

Monday hasn’t treated investors nicely these days. Following the worst February since 1930s, the market continued its freefall in the first trading session of March. The Dow, shedding another 300 points, closed below 7000 for the first time since 1997. The S&P 500, finishing barely above 700, has lost in all but one of the past eleven trading sessions. Meanwhile, investors fled away from the market as fast as they flocked into it during the late 1990s. As of the end of last month, cash parked in money market mutual funds can purchase over 50% of the entire S&P 500 index, a record high in its 25-year tracking history. My belief in investing is the majority is always wrong when things are at their extremes. We don’t need to go back too far to verify that. Simply checking the past decade, we see most individual investors didn’t know how the internet companies would make money when they pushed the Nasdaq index above 5000; they thought that real estate could only go up but in reality many owe more than what their homes are worth now. In contrast, when housing and stock finally provide the most attractive valuations in decades, those same folks choose to walk away.
In a day when most headline news came as negative as they can get, I try to list some not-so-bad ones below. After all, confidence is what most investors need at this point. The first is the Housing Affordability Index published by National Association of Realtors. The January reading of 166.8 is the highest on record and almost 60% higher compared to 2006. Back in 2006 when the real estate bubble was still at its hey day, one needs to make a monthly payment of $1131 for a median priced single family home, which was $221,900 at that time. The minimum qualifying household income in 2006 was $54,288. At the beginning of 2009, one needs to make a monthly payment of $747 for a similar house due to decreasing home price(currently at $169,900) and decreasing mortgage rate(currently at 5.21% vs. 6.58% in 2006). The minimum qualifying household income now is $35,856. The second piece of not-so-bad news came from the job front. According to the Conference Board, online advertised job vacancies dipped 6,600 to 3.348 million in February. Comparing to sharp drops of 507K in December and 506K in January, the pace of decline is at least slowing. Of course, I still expect to see a big drop (probably as high as 600K) in the nonfarm payroll report due this Friday.
Let’s take a look at the three key indicators plus the iTraxx CDX composite index: 1. VIX: closed at 52.65 compared to 46.35 last Friday; 2. The euro/yen cross: closed at 123 compared to 124 last Friday; 3. The TED spread: closed at 104 bps compared to 101 bps last Friday; 4. iTraxx CDX composite spread: closed at 767 bps compared to 775 bps in the previous week.