The market got a nice treat on this Halloween Friday as all three major indices finished the session higher by at least 1%. It is also the first time since late September that the market has a back-to-back gain. The October that we just finished will certainly be one of the most memorable in history. It will be referred by history books as many times as some other important months in financial history, such as September 1929 and October 1987. Nonetheless, many market participants, myself included, should feel relieved that it is finally over. But are we really out of woods yet? The week that just ended certainly gives us some hope. To summarize, it is the best week in more than three decades and helps the market avoid the worst month in more than seven decades – but it is still the worst month in more than two decades.
Let’s take a look at how the three key indicators behave in today’s market: 1. VIX: closed at 59.89 from 62.9. As for the week, the index has dropped 20 points. Conclusion: improving; 2. The euro/yen cross: closed at 126, essentially unchanged from yesterday. For the week, it increased from 119 to 126. Conclusion: worsening; 3. The TED spread: closed at 259 bps from 281bps in the previous session. As for the week, the spread narrowed by more than 10bps. But it should be noted that the Fed has lowered it key rate by 50 bps this week so the spread should have been narrowed by 60 bps. Conclusion: improving. In summary, we have all three key indicators move towards the right direction over the week and it should be no surprise to see equity markets around the world react positively. Having said that, one has to keep in mind that all three indicators are still in elevated levels by historical standards so extra caution is warranted.
Economic news for the session didn’t provide much support to today’s market. Consumer spending dropped 0.3%, worse than market expectation and confirming the weak consumption trend observed in the Q3 GDP report. The Chicago PMI, which measures the manufacturing activities in that region, decreased to 37.8 from 56.7 in September. It is much worse than what economists were expecting and is the biggest monthly drop since the index started in 1968. The reading didn’t bode well for the national ISM report due on Monday.
Transportation and financials provided most leadership to today’s trading. Utilities and consumer staple were relatively underperforming. The CRB commodity index rebounded less than 1%. The US dollar was mixed against most major currencies while treasuries were mixed with the yield curve flattened. The VIX index dropped 3 points. The market breath was positive on NYSE and Nasdaq while the volume was light compared to the previous session.

All three major indices finished the session higher by at least 2%. Many overseas markets especially those in Asia fared even better. For instance, stock markets in South Korea, Japan and Hong Kong all surged by 10% or more. Similar to all previous sessions so far in October, today’s trading was quite volatile and the market was lifted by more than 2% during the last half 30 minutes. As tomorrow is the final session of October and we are going to enter historically strong season from November to May, will we get some better time ahead?
Let’s take a look at how the three key indicators behave in today’s market: 1. VIX: closed at 62.9 from 69.96. Conclusion: improving; 2. The euro/yen cross: closed at 126 from 129 in the previous session. Conclusion: worsening; 3. The TED spread: closed at 281 bps from 285 bps in the previous session. Conclusion: improving. In summary, we have mixed signals from the three indicators above, which mean we should continue to see volatile market ahead.
We had some important economic reports today. Interestingly, there were not as bad as many had feared. Start with the weekly initial claims. It came unchanged at 479K from the previous week, slightly higher than 473K expected. But probably as soon as next week, we will see the number exceed 500K mark and continue to climb higher. Continuing claims, meanwhile, fell 12K to 3.72 million. The four-week average rose 28K to 3.71 million, the highest in more than five years. Move on to Q3 GDP, which shrank 0.3% vs. a contraction of 0.5% expected. Consumer spending, which accounts for 70% of the GDP calculation, dropped at a 3.1% annual pace, worse than 2.4% drop expected. It was the first such decline since 1991 and the biggest since 1980. We should expect to see even worse reading in consumer spending in the fourth quarter. On a bright side, narrower trade deficit and a smaller decline in inventories helped prevent a deeper contraction. Without such effects, the economy would have contracted at a 1.8% pace. But one needs to keep in mind that the trade figure is subject to further revision in the next few months.
All 10 major sectors ended the session higher led by basic materials and energies. Consumer staple and healthcare were relatively underperforming. The CRB commodity index tumbled almost 3% led by weakness in industrial metals. The US dollar was mixed against most major currencies while treasuries were mixed with the yield curve steepened. The VIX index dropped 6 points. The market breath was positive on NYSE and Nasdaq while the volume was light compared to the previous session.

The market didn’t move much on this Fed decision day. In fact, if it were not the selling pressure from the last 10 minutes, the market would have been up by 3%. At close, the Dow lost 74 points or less than 1% while the Nasdaq gained 7 points. The Fed, as widely expected, lowered the key interest rate from 1.5% to 1%, matching the lowest level since 1960s. It is quite interesting to see that the interest rate has been lowered to the same level that arguably started the housing bubble. Maybe a new bubble is in her infancy? As always, the Fed issued a statement following the FOMC meeting. For the first time in a while, the Fed noted that inflation is expected to moderate in coming quarters. As a result, the sole task of the Fed now is to fight slowing economy. In other economic news, durable goods orders for September rose 0.8% vs. -1.1% expected. Excluding volatile transportation, it fell 1.1%, also slightly better than consensus. But on the negative side, nondefensive capital goods excluding aircraft, which is a good indicator for future business investments, fell 1.4%.
Let’s take a look at how the three key indicators behave in today’s market: 1. VIX: closed at 69.96 and up 3 points from yesterday. Conclusion: worsening; 2. The euro/yen cross: closed at 129 from 123 in the previous session. Conclusion: improving; 3. The TED spread: closed at 285 bps from 271 bps in the previous session. Conclusion: worsening. In summary, we have mixed signals from the three indicators above, which mean we should continue to see volatile market ahead.
Basic materials and energies were the biggest winners for the session as each posted a gain of around 5%. Consumer staple, financial and healthcare were relatively underperforming. The CRB commodity index surged over 5% as a weak dollar attracted buyers into the commodity market. The US dollar lost ground against most major currencies while treasuries were mixed with the yield curve steepened. The VIX index rose 3 points. The market breath was neutral on NYSE and Nasdaq while the volume was at around the same level as the previous session.

What a day on Wall Street! For the second time this month, both the Dow and the S&P 500 surged more than 10% in a single session. But so far in October, the S&P 500 is still off 20%. Several factors are behind today’s record advance (the S&P 500 has the second best day since 1950). First, stocks are badly oversold heading into today’s trading and many overseas markets have massive rebounds as a result; Second, short-covering plays a big role in late afternoon’s advance as shorts are getting nervous ahead of tomorrow’s FOMC meeting; Third, commercial paper market shows signs of stabilization after the Fed starting to purchase directly from issuers. Despite today’s huge rally, the real question is whether it is just a one-day wonder like it did on October 13th. We will certainly keep an eye on that.
Let’s take a look at how the three key indicators behave in today’s advance market: 1. VIX: closed at 66.96 and down 13.1 points from yesterday. Conclusion: still high but improving; 2. The euro/yen cross: closed at 123 from 117 in the previous session. Conclusion: improving; 3. The TED spread: closed at 271 bps from 278 bps in the previous session. Conclusion: improving. In summary, we have improvements in all three key indicators although all of them are still at elevated levels.
The biggest news of the day is probably from consumer confidence, which tumbled to an all-time low or merely 38. Economists were expecting a smaller drop to 52. But interestingly, the lows in consumer confidence often coincide with troughs in the stock markets during the past four decades. For instance, we had consumer confidence of 43.2 in December 1974, 50.1 in May 1980, 54.3 in October 1982 and 47.3 in February 1992. By six months later the S&P 500 was higher every time by an average of 21%. Will history repeat again this time? Let’s hold our breath for now.
All 10 major sectors finished the session higher by at least 5%. Energies and basic materials are leading the market up. The CRB commodity index rebounded slightly. The US dollar was lower against most major currencies while treasuries dropped. The VIX index dropped from yesterday’s record high but remained at an elevated level. The market breath was positive on both NYSE and Nasdaq and the volume was increasing compared to yesterday.

The market continued to swing wildly on the first trading session of the new week. At close, all three major indices were lower by at least 2% and extending the month-to-date loss to more than 27%, something we haven’t seen in the past 77 years. But the good news is with the end of October is approaching, will the old “buy in November and sell in May” prove its merit again this time? Hopefully we will get some good answers soon.
Again let’s start with the three key indicators I mentioned last week. And I will add a fourth indicator later, which will give us a more comprehensive view of the health of the credit market: 1. VIX: closed at new record high of 80.06 but intra-day high was lower compared to last Friday. Conclusion: worsening; 2. The euro/yen cross: closed at 117 from 119 in the previous session but the intra-day low was better compared to last Friday. Conclusion: worsening; 3. The TED spread: closed at 278 bps from 270 bps in the previous session. Conclusion: worsening. In summary, there is no improvement at all in any of those key indicators and we should expect turmoil situation to last at least in the next few trading sessions.
The fourth indicator I’m going to add here is a composite index I derives from a basket of iTraxx spreads, which cover those hard-to-sell financial products(like CDX) and also those emerging/developed market credit products. Due to the complex of the product, I’m only going to publish the results here on every Monday but a clear trend can nonetheless be established. Between August 10th and October 26th, the average spread of the composite index jumped from 307 bps to 592 bps, or more than 90%. That clearly demonstrates a run to safety. Just in the past week alone, the average spread increased more than 20% from 498 bps to 592 bps. To put things in perspective, the average spread was under 200 bps at the beginning of this year. Conclusion: the credit market didn’t improve at all during the past week.
This week is going to be a very interesting week. Not only because it is the last week of October, which marks the year-end for many mutual funds, but also because there are several important economic reports along with the always important Fed meeting. Today we got the New Home Sales report for September. Similar to the existing home sales last Friday, it came better than expected. Tomorrow we are going to have Consumer Confidence reading for October. Given the recent market turmoil, it should be no surprise to see a sharp drop in consumer sentiment. This Wednesday we will have Durable Orders, which should show continuing weakness in the big ticket items. Of course, late that day, we are going to get the Fed decision on interest rate. Right now the market is widely expecting a 50 bps cut. One should keep it in mind that any further cut from the current level is symbolic rather than real use. Then on Thursday we are going to get a first look at the Q3 GDP, which is expected to contract again following a contraction in Q4 2007. It is almost certain that the real GDP in Q4 will be much worse than Q3. Congress will probably pass a second stimulus package hopefully shortly after the election next week. Finally we are going to get Personal Income/Spending reports on Friday. Personal Income will be worth paying attention to as that figure will ultimately determine how much money consumers have for the upcoming holiday season.
All 10 major sectors finished the session in red. Energies and basic materials were leading the market down. It is worth noting that the latter was down sharply today despite some meaningful rebound in industrial metal prices. The CRB commodity index rebounded almost 1%. The US dollar gained against most major currencies while treasuries were mixed with the yield curve steepened. The VIX index closed at the highest level on record. The market breath was negative on both NYSE and Nasdaq and the volume was relatively light.