Yesterday’s rally proved to be short-lived. All three major indices ended the day and the week lower. The Dow, which was dragged by an almost 9% loss in its component AIG, started the day off by more than 100 points and was staying in the negative territory throughout the session before ending the day lower by 120 points. For the week, the market was off by around 2%, ending a 3-week winning streak. The only economic news came positively as the trade balance narrowed more than expected to a deficit of $58.2 billion, which should have a positive impact on Q1 GDP revision. However, another record high oil price prevented the market from having any meaningful rally.
All major sectors finished the session in red. Interestingly, most commodity sectors were lower despite a new high in the CRB commodity index. It is worth noting that crude oil set a new record closing high in every session this week. After the bell, a profit warning from FedEx clearly showed the impact of high oil price on the broad economy. The narrower trade gap didn’t help the US dollar, which was lower against most major currencies. Treasuries were mixed in today’s session with the yield curve flattened somewhat. As for the week, the two-year note yield dropped 22 bps while the ten-year yields fell 9 bps.

The market had a modest rebound following yesterday’s sharp drop. However, the volume was quite light. Most economic news for the day was on the positive side. The weekly jobless claims came at 365K vs. 375K consensus. The continuing claims were 3.02 million for the week ending April 26th compared to 3.03 million in the previous week. In addition, most chain retailers reported better than expected monthly same store sales for April. Unlike yesterday, another record high oil price didn’t deter investors from doing some bottom fishing in today’s trading.
Commodities resumed their leadership in the market. The CRB commodity rose 0.5% and closed at 422.14, a new high. Financials, on the other hand, were the main underperformers ahead of AIG’s earnings results after the bell. AIG just reported worse-than-expected results for the first quarter, which will add more pressure to the financial sector in tomorrow’s trading. The US dollar was mixed against most major currencies. Overnight, both ECB and BOE kept their interest rates steady, in line with market expectation. It is worth noting that the US dollar has advanced more than 4% against the euro since the lows touched on April 22nd. Treasuries rallied across the board after dropping persistently in the past few weeks. In the latest Fed TSLF auction, the cover ratio came at a mere 0.58, indicating the demand for treasuries has waned quite noticeably. As we stated before, the worst of the recent financial crisis may be over but the road to recovery will be a bumpy one.

After a quiet and flat start, the market gradually trended lower during the early trading before taking a plunge late in the afternoon. All three major indices posted a loss in excess of 1.5%. The Dow Transportation Average, which performed great until yesterday, did even worse and closed the day lower by more than 3%. It is worth noting that today’s sharp drop happened in a session with most economic news in-line or better than expectation. The productivity for Q1 rose 2.2% compared to 1.5% expected and the unit labor costs increased at a rate of 2.2%, below 2.6% consensus. The March pending home sales fell 1.0%, in-line with expectation. However, another record high oil price finally took a toll in the market. 
All 10 major sectors ended the day lower. Financials and transportations were among the biggest losers. The former was performing poorly throughout the session with selling pressure picking up in the afternoon when news that the SEC will require investment banks to disclose their capital and liquidity levels hit the wire. The latter was a victim of the record high oil price, which climbed above $123 mark despite of rising US dollar and a bearish inventory report. Maybe the only thing that can stop oil price from moving higher is the oil bulls themselves when they decide enough is enough. The US dollar moved higher against most major currencies. Treasuries reversed their early losses and ended the day higher following a sharp drop in the equity market. The VIX index, which is usually used as a fear indicator, jumped 1.54 point today but remained at a rather low level. Volumes picked up noticeably during the afternoon selling, indicating we may need some really good news to reverse today’s sharp drop.   

Despite a rather negative opening, the stock market ended the day modestly higher. The Dow, which gained 0.4% for the session, continued to lag behind the Nasdaq and the S&P 500, both of which posted a gain of around 0.75%. There is no economic news so the market movement is more of an action of its own. It is quite impressive that the market moved higher despite several negative earnings reports from financial and homebuilding sectors. Also, the market shrugged off negative impact from yet another record high oil price.
All 10 major industrial sectors closed the day in the green territory. Commodities and transportations were among the noticeable leaders. The Dow Transportation Average closed at another high for the year. So far in 2008, it has gained 17.5% year-to-day and is only 3% below the historical high, which was reached last July before the sub-prime drama entered its centre stage. The CRB commodity index closed the day higher by more than 1% with gains seen across the board. The US dollar ended the day modestly lower while the treasuries were mixed. The yield curve, meanwhile, continued to get steepened. After the bell, both Disney and Cisco posted better than expected earnings results, which should give the market an early boost tomorrow. Apparently, investors are becoming more confident now compared to just two months ago as seen by more risk taking activities in the market. However, it is probably time to remind ourselves of the famous saying by Warren Buffett “Be fearful when others are greedy and greedy when others are fearful”. Something just never changes.

The market ended the first trading day of the new week modestly lower. The loss was quite contained as the Dow, which performed the worst among the big three, posted a loss of 0.7%. The only important economic news turned out to be better than expected. The April ISM services reading came at 52.0, up 2.4 points from the previous month. Economists expected a drop to 49.1 instead. It marked the first expansion in the service sector since last December. However, a new record oil price along with pressure from the financial sector prevented the market from advancing further.  
Commodities were among the biggest winners of the day. The CRB commodity index jumped 5.7 points led by energies and industrial metals. It is worth noting that oil continued to hit historical high even though the dollar has gained some ground recently. The US dollar did pull back somewhat today after gaining more than 2% in the past two weeks. Treasuries rallied modestly while the yield curve continued to steepen. As we are now in May and there is an old saying of “Sell in May and Buy in November”, so we take a look at how May has performed in all election years after WWII. There are 15 such instances ranging from a loss of 6.48% to a gain of 5.57%. The average return of those 15 instances was a positive 0.44%. Probably more interesting, the market has positive returns throughout the May-November period except for September, when the return was negative 0.7%. The total average return over the period was a rather impressive 3.70%. Will historical trend continue in the current election year? We don’t know the answer but from past experiences, it may not be a wise idea to bet against the market simply based on that old saying.