The market tumbled in the final session of the week with the S&P 500 closing the session lower by almost 3%. Yesterday's sharp rally turned out to be nothing more than a one-day rally. As for the week, the S&P 500 was off by around 4% and it also ended its seven-month winning streak, finishing the month lower by around 2%. Technically, Friday's drop has done some serious damage to the already fragile market. As we are heading into November, we should see some early weakness at least. But if history is any guidance, the period between November and May is usually the best time to invest. Of course that didn't hold true during the past year as the S&P 500 fell around 10% between November 1 2008 and May 1 2009. 
Most economic data for the session were in-line or better than expected. The Chicago PMI came in at 54.2, higher than 49 consensus. Both personal spending and personal income reports matched expectations. 
All 10 major sectors finished the session lower led by industrial and basic materials. The CRB commodity index dropped 2%. The US dollar was higher against most major currencies. Treasury yields dropped. The three-month US LIBOR was unchanged at 28 bps. The VIX index rose more than 5 points. The market breath was negative on both NYSE and Nasdaq. The volume was similar compared to the previous session.

The market tumbled on this Wednesday with the S&P 500 finishing the session lower by almost 2%. It is the seventh time during the past nine days that both the S&P 500 and the Nasdaq closed in the red. The market has now given up more than 5% (in the case of the S&P 500) from its recent highs. Worries about the strength of the economic recovery remain the top concern for investors. It is interesting to see how investor’s sentiment can swing between extreme pessimism and equally extreme optimism within a short period of time. Back in March, when the S&P 500 fell to its lowest point since 1996, investors feared the whole financial system was going to collapse and sold whatever they held at whatever price they could get. Of course, by now everyone knows that the world didn’t end at that time. After the March lows, the S&P 500 spent the next seven month in a steady uptrend and gained 60% without major setbacks. Investors, as if nothing had happened in the past twelve months, started to believe that we were going to get a V-shaped recovery and thus everything should be bought rather than sold. Unfortunately, some of them are being burned quite badly in the last few sessions. So where are we right now? We are in the middle of a recovery, no doubt. But the recovery would be bumpy and sometimes may even appear it would fall back to the abyss.

Once again economic reports were disappointing to some investors. Durable orders rose 1%, in line with expectations. However, new home sales unexpectedly fell 3.6% to a seasonally adjusted annual rate of 402K from 417K in August. Economists were looking for a pace of 440K. The report certainly cast some doubts in the strength of the housing recovery. The only bright spot in the report is that inventory of 251K is the lowest in nearly 27 years. But clearly investors didn’t care by that much.

All 10 major sectors finished the session lower led by industrial and basic materials. The CRB commodity index dropped 2%. The US dollar was higher against most major currencies. Treasury yields dropped. The three-month US LIBOR was unchanged at 28 bps. The VIX index rose more than 2 points. The market breath was negative on both NYSE and Nasdaq. The volume was a little heavier compared to the previous session.

The market finished the session in a mixed fashion. Both the S&P 500 and the Nasdaq, however, registered their sixth loss during the past eight sessions. This week is of course another busy week in terms of earnings results. As much as 30% of the S&P 500 companies are scheduled to unveil their operating performance for the past thirteen weeks. But clearly, earnings are not going to be a key driver for the market, at least not for the near term. Investors, unlike what they did in the previous quarter, are going to focus on incoming economic reports once again. Yes, we do have remarkable earnings results so far in the earnings season but that has been mostly priced in the stock prices already. In fact, many stock prices are traded below where they were before the earnings reports although their companies beat both top-line and bottom-line expectations. The stock market is always a forward-looking machine. Investors are going to pay more attention to signs related to 2010 from now on.  

Once again we got some mixed economic reports. On the positive side, the S&P/Case-Shiller home-price index for August climbed 1% from the prior month. Compared to a year earlier, it fell 11.3%, less than the 11.9% decline forecast by economists. The news initially provided a boost to the stock futures when released at around 9am this morning. The problem is that the data are a little out of date as it only provided a picture of what was going on two months ago. Investors paid more attention to a more recent report and here they were disappointed. The Conference Board’s consumer confidence index unexpectedly dropped to 47.7, much lower than 53.6 forecast. Weak job market was cited as the main reason behind today’s poor consumer confidence numbers.

Most major sectors finished the session lower led by transportation and basic materials. The CRB commodity index was essentially unchanged. The US dollar was higher against most major currencies. Treasury yields dropped. The three-month US LIBOR was unchanged at 28 bps. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was a little lighter compared to the previous session.

The market started the new week in a volatile fashion. It opened the session basically flat and then moved higher by more than 1% before ending the session lower by 1%. Intra-day strength in the US dollar was cited as the main reason behind today’s market move. As we mentioned several times before, the market was getting tired despite outstanding earnings results so far in the earnings season. Even a great bull market needs some break from time to time. On top of that, many traders resorted to an old trade but used a different currency. In a typical carry trade, one trader would borrow the yen (due to its low cost of funding) then sell it to buy other high-yielding currencies. But since early this year, some traders started to use the US dollar instead of the yen due to its superior liquidity. The S&P 500 futures, meanwhile, are often used as a hedge tool against the falling dollar. The correlation existing between the currency market and the equity market is actually greater now. In fact, one can notice the increase of volatility in the currency market last week.

For the week ending on October 23, most major indexes continued to show bullish stances. If there was some troubling sign, it was the Dow Transportation index. While the Dow Industrial only dipped 0.2% from the previous week’s close, the Dow Transportation tumbled over 5% and closed below its 50-day moving averages. Sectorwise, China’s new media, copper mining and farm equipment makers were among the best performers while airlines, biotechs, and tankers showed sizable losses.

All 10 major sectors finished the session lower led by financial and basic materials. The CRB commodity index dropped 1.6%. The US dollar was higher against most major currencies. Treasury yields rose. The three-month US LIBOR was unchanged at 28 bps. The VIX index rose more than 2 points. The market breath was negative on both NYSE and Nasdaq. The volume was a little heavier compared to the previous session.