Stocks continued to rally across the board on Friday, pushing the major indexes to have the best weekly gain since last November. Before this week, the market has dropped for four consecutive weeks with losses ranging between 4% and 7% in each instance. This week’s gain also brought the market temporarily out of the negative territory for the month and the market has been down for six straight months entering into March. But the key question facing investors remains whether the rally can sustain. Given the importance of the coming week, which is both a Fed meeting week and an option expiry week, we will know the answer pretty soon.
These days more and more market commentators like to compare the current market with what happened during the Great Depression. Indeed, the only comparable period that the market has suffered such a big drawdown in such a short period is that between 1929 and 1932. To get a feeling of how things really looked like at that time, I spend most of past few weeks reviewing articles written during that period. Below is a piece extracted from an article appearing on May 12 1932 Wall Street Journal. Two months later the market reached the trough of that bear market.
“…Industrial stocks have shrunk to 14% of maximum 1929 prices, and have obliterated a structure of 17 years’ upbuilding. Railroad stock prices, which less than three years ago soared at historical summits, have cancelled 70 years of patient, toiling progress, and have sunk to Civil War quotations. Junior bonds of 40% of the railroads register prices which are representations of receivership without the fact. New York bank stocks’ average prices are about 10% of 1929 peaks…
Although most of the combined business activity indexes now hover around 60-65% of the theoretical normal, it is shocking to discover specific series showing activity from 23% to 60% of the activity rates of 1929. For example, steel production at 100% of theoretical capacity in May 1929 is now at 24%. Motor vehicle production(units) for the first quarter of 1932 was 24.5% of that obtaining in the initial quarter of 1929; value of building contracts was 23.3% of those in first 1929 quarter. Foreign trade is currently running about 28% of the 1929 level. Car loadings thus far in 1932 are off 41.3% from the corresponding 1929 period…” 
Let’s take a look at the three key indicators: 1. VIX: closed at 42.36 compared to 41.18 yesterday; 2. The euro/yen cross: closed at 127 compared to 126 yesterday; 3. The TED spread: closed at 113 bps compared to 112 bps yesterday.
Most major sectors finished the session higher led by healthcare and consumer cyclical. The CRB commodity index dropped 0.3%. The US dollar was lower against most major currencies. Treasuries were little changed while most corporate bonds rallied. The three-month US LIBOR was unchanged at 132 bps. The VIX index increased 1 point. The market breath was positive on both NYSE and Nasdaq. The volume was lighter compared to yesterday.

Bullish sentiment on Wall Street was powerful enough to turn the best one-day rally so far this year into the biggest three-day gain streak since last November. Positive developments in several Dow components were helping the 113-year index achieve a gain of 240 points. GE’s AAA rating was cut for the first time since 1956. But since a credit downgrade was widely anticipated and the size of the cut came smaller than expected, shares of GE gained 13%. Bank of America CEO Kenneth Lewis, like his counterparties in Citi and JP Morgan, mentioned today that the bank was also profitable in the first two months of the year. Shares of BAC rose 19%, helping the financial sector gaining more than 10% in today’s trading. The sector was also helped by comments from the chairman of FASB, who told Congress members during today’s mark-to-market accounting hearing that his agency “could have the guidance in three weeks”. GM, which has relied on government loans to survive, advanced 17% after saying it didn’t yet need another immediate cash injection in March. Although the market has rebounded over 10% since its recent lows, money sitting on the sideline continues to rise. In the latest week ended Wednesday, total money market mutual fund assets actually rose by $461 million to $3.906 trillion, enough to buy over 50% of the S&P 500 index at today’s close price.
Let’s take a look at the three key indicators: 1. VIX: closed at 41.18 compared to 43.61 yesterday; 2. The euro/yen cross: closed at 126 compared to 124 yesterday; 3. The TED spread: closed at 112 bps compared to 111 bps yesterday.
All 10 major sectors finished the session higher led by financial and technology. The CRB commodity index rallied 4.0% fuelled by an 11% surge in crude price. The US dollar was lower against most major currencies. Treasuries rallied with the yield curve flattened. The three-month US LIBOR dropped 1 bps to 132 bps. The VIX index dropped 2 points. The market breath was positive on both NYSE and Nasdaq. The volume was heavier compared to yesterday.

The market held up relatively well following yesterday’s biggest rally so far in 2009. Although the Dow’s 4-point gain was almost negligible, it nonetheless marked the first two-day win streak for the index since early February. Financials once again provided much needed support to the broad market as CEO Jamie Dimon from JPMorgan, echoing his counterparty in Citigroup, reiterated late afternoon that his bank was also profitable in the first two months of the year. Yesterday’s rally may have more sustaining power compared to other rallies so far this year, according to some market technicians. At least three measures of buying interest, including the NYSE Closing TICK, the NYSE Advance/Decline figure, and total composite Up Volume in NYSE-listed shares, set all-time records in yesterday’s trading. In terms of valuation, the closing price of the S&P 500 on Monday marks the cheapest buying opportunity since 1950s if one takes into account of prevailing interest rates and the trailing 10-year average earnings, which smoothes out volatile earnings in recent quarters. Of course, the most important factor that will guide the market in the next few weeks remains the health of the economy. Many industries are currently operating at depression levels. The steel industry, for instance, is only using a little more than 40% of its capacity in recent weeks. Back in 1932 during the Great Depression, the industry was operating at around 20% of its capacity.
Let’s take a look at the three key indicators: 1. VIX: closed at 43.61 compared to 44.37 yesterday; 2. The euro/yen cross: closed at 124 compared to 125 yesterday; 3. The TED spread: closed at 111 bps compared to 110 bps yesterday.
Most major sectors finished the session higher led by basic materials and technology. Healthcare and energy were lagging. The CRB commodity index dropped 2.0%. The US dollar was lower against most major currencies. Treasuries rallied with the yield curve flattened. The three-month US LIBOR was unchanged at 133 bps. The VIX index dropped 1 point. The market breath was positive on both NYSE and Nasdaq. The volume was lighter compared to yesterday.

The market enjoyed its best one-day showing so far in 2009 and all three major indexes registered gains in excess of 5%. The rally was fuelled by an almost 16% surge in the financial sector, which was in turn triggered by positive comments from the CEO of Citigroup. In an internal memo to employees, CEO Vikram Pandit disclosed that during the first two months of this year, Citi’s operating revenue was $19 billion while expenses were $8.1 billion. In other words, operating earnings before write-downs and further loan provisions for the two months were more than $10 billion and underlining earning power for the full year is at $60 billion before charges. Actually Citi is not alone with this kind of strong underlining earning power thanks to the positive-sloped yield curve. Among the big financial firms, JP Morgan disclosed in February that its operating earnings for 2009 before charges would surpass $40 billion and Wells Fargo indicated its operating earnings before charges would be around $28 billion. However, what concerns investors these days are the post-charge earnings, which could easily bring operating earnings into a loss due to billions of write-down in assets. Therefore, it remains too early to say whether today’s rally is a real one or just one of those one-time events.
Let’s take a look at the three key indicators: 1. VIX: closed at 44.37 compared to 49.68 yesterday; 2. The euro/yen cross: closed at 125 compared to 125 yesterday; 3. The TED spread: closed at 110 bps compared to 111 bps yesterday.
All 10 major sectors finished the session in positive territory led by financials. The CRB commodity index dropped 0.4%. The US dollar was lower against most major currencies. Treasuries dropped with the yield curve steepened. The three-month US LIBOR closed at 133 bps, the highest since January 8th. The VIX index tumbled 5 points. The market breath was positive on both NYSE and Nasdaq. The volume was on the heavy side.

The market continued its painful process of searching for a bottom. At close, all three major indexes were down by at least 1% and reached new multi-year lows. Mutual fund withdraw has been an important factor behind recent declines. According to fund flow tracking company AMG, individual investors have netted out over $20 billion from their mutual fund holdings during the past three weeks or at an annual rate of almost $350 billion. It is indeed a tough period for most mutual fund investors considering most funds are back to levels before 1996. One bright spot in an otherwise dull session came from the credit market. Bank of America and GE capital managed to raise a combined $16.5 billion debt with little premium over corresponding benchmark rates under the FDIC’s Temporary Liquidity Guarantee program. For instance, BAC sold $4 billion of floating-rate notes due in September 2010 that pay 3 bps more than 3-month LIBOR and $2.5 billion of floating-rate notes due in June 2012 that yield 20 bps more than 3-month LIBOR. Lower funding costs mean that banks are more likely to return to profitability. When the credit market was frozen during the final quarter of last year, banks sometimes had to pay as much as 800 bps over LIBOR rates in order to attract buyers.
Let’s take a look at the three key indicators plus the iTraxx CDX credit spread: 1. VIX: closed at 49.68 compared to 49.33 last Friday; 2. The euro/yen cross: closed at 125 compared to 125 last Friday; 3. The TED spread: closed at 111 bps compared to 111 bps last Friday; 4. The iTraxx CDX credit spread: closed at 873 bps, a new high, compared to 768 bps in the previous week.
Most major sectors finished the session lower led by technology and transportation. The CRB commodity index dropped 0.6%. The US dollar was higher against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR closed at 131 bps, the highest in two months. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was neutral. Over 1200 issues hit fresh 52-week lows on NYSE and Nasdaq.