U.S. stocks engaged in another incredibly volatile day of trading as the broad market was down 4.6% at its low point only to rally in the afternoon session to close 4.25% higher. From the day’s nadir, which occurred 90 minutes into trading, that amounts to a surge of 9.4% to the close. The same activity was true for the Dow and NASAQ Composite.
Oil futures price slid another 6.3% yesterday, which fueled buying in sectors such as industrial and consumer shares.
Technology shares enjoyed a very nice session as earnings reports from the group continue to look quite strong. However, some of the high-growth areas of the past couple of years – specifically the Asian economies – are beginning to wane, which was evident by IBM’s results that showed growth in the region decelerated to 6% from double digits in the previous quarter.
This was inevitable as the U.S. consumer has pulled back in a big way. The Asian economies are export-driven and if the largest import market is going to reduce activity then there’s really no way for the region to continue along the growth path of the last several years.
Market Activity for October 16, 2008
The price of oil has come down even faster than it went up; crude per barrel has returned to the level it stood when the Fed began to aggressively cut rates a year ago. A combination of de-leveraging, lower demand, global growth concerns and higher supplies of late have contributed to the move.
The market may begin to pay more attention to this development. A couple of economists have talked about the “tax-cut” effect as oil has moved dramatically lower over the past couple of months. Those comments were a bit early, but now we’re getting somewhere. Now, with crude per barrel back to $70 and the price at the pump below $3 a foot has been removed from the consumer’s throat. We should see gasoline prices move down to $2.50 per gallon within the next couple of weeks – in the aggregate, this is big news.
On the economic front, the Labor Department reported initial jobless claims fell 16,000 to 461,000 in the week ended October 11 – although this data may be subject to a higher than normal revision as some state offices were closed for Columbus Day, causing the government to estimate claims in eight states. (I don’t know why only a few were closed; thought all government offices were closed for that holiday, but apparently not)
The decline in claims was largely due to the bounce back effect from hurricane-related dislocations in the prior four reports. The most telling aspect of the report was that 42 states and territories reported an increase in claims, with just 11 reporting a decrease. This is a very negative ratio and suggests the level of claims will remain elevated, and very likely grow – not a big surprise there with all that has occurred.
The four-week average, which smoothes out volatility, rose to the highest level since the 2001 recession (as the chart below shows). The number of people continuing to collect jobless benefits climbed to 3.711 million in the week ended October 4. Part of this is due to the government extending the duration one can collect benefits. This would not be an incentive to remain on the dole for most, but surely enough will decide to continue to take the handout instead of looking for less than appealing work that is sometimes the case during times of labor-market weakness.
That said, we should remember that the unemployment rate stands at 6.1%, which is exactly the average of the past 30 years – so its not as if the scenario is as pathetic as often reported. But the way things are shaping up here, especially in the last few weeks, we would expect the jobless rate to rise above 7%. The chart below offers some perspective.
In a separate report, the Labor Department stated the consumer price index (CPI) continued to decelerate last month. The month-over-month reading was flat for September and up 4.9% on a year-over-year basis – both were a bit better than expected. That year-over-year reading is down from 5.4% in the previous month.
Large declines in the fuels components offset significant increases in food components during September – the rise in food prices, almost across the board, over the past few months (up 8.7% at an annual rate past three months) is concerning and may keep CPI from falling to the degree that most expect.
However, the decline in fuels is obviously very encouraging (except for the fact that one reason for the decline is serious deterioration in global growth; the other being the de-leveraging process as funds have to sell that which is most liquid to meet redemption calls).
Yet another release, this one from the Commerce Department, showed industrial production plunged in September, declining 2.8%, marking the largest drop since 1974. Thankfully, much of this was due to hurricane-related shutdowns and the Boeing strike. Hurricane Ike, which hit September 13 forced oil production, utility and other facilities to shutdown – this accounted for 2.25 percentage points of the decline. Adjusting for these events, the decline in industrial production was mild, which is good. Still, no matter how transitory the effect, it will weigh substantially on the Q3 GDP reading; we get the first look at that figure on October 30.
Ultimately, we’ll have to wait for the October data to assess the degree to which current credit and economic events have truly affected the reading.
Have a great weekend!
Oil futures price slid another 6.3% yesterday, which fueled buying in sectors such as industrial and consumer shares.
Technology shares enjoyed a very nice session as earnings reports from the group continue to look quite strong. However, some of the high-growth areas of the past couple of years – specifically the Asian economies – are beginning to wane, which was evident by IBM’s results that showed growth in the region decelerated to 6% from double digits in the previous quarter.
This was inevitable as the U.S. consumer has pulled back in a big way. The Asian economies are export-driven and if the largest import market is going to reduce activity then there’s really no way for the region to continue along the growth path of the last several years.
Market Activity for October 16, 2008
The price of oil has come down even faster than it went up; crude per barrel has returned to the level it stood when the Fed began to aggressively cut rates a year ago. A combination of de-leveraging, lower demand, global growth concerns and higher supplies of late have contributed to the move.
The market may begin to pay more attention to this development. A couple of economists have talked about the “tax-cut” effect as oil has moved dramatically lower over the past couple of months. Those comments were a bit early, but now we’re getting somewhere. Now, with crude per barrel back to $70 and the price at the pump below $3 a foot has been removed from the consumer’s throat. We should see gasoline prices move down to $2.50 per gallon within the next couple of weeks – in the aggregate, this is big news.
On the economic front, the Labor Department reported initial jobless claims fell 16,000 to 461,000 in the week ended October 11 – although this data may be subject to a higher than normal revision as some state offices were closed for Columbus Day, causing the government to estimate claims in eight states. (I don’t know why only a few were closed; thought all government offices were closed for that holiday, but apparently not)
The decline in claims was largely due to the bounce back effect from hurricane-related dislocations in the prior four reports. The most telling aspect of the report was that 42 states and territories reported an increase in claims, with just 11 reporting a decrease. This is a very negative ratio and suggests the level of claims will remain elevated, and very likely grow – not a big surprise there with all that has occurred.
The four-week average, which smoothes out volatility, rose to the highest level since the 2001 recession (as the chart below shows). The number of people continuing to collect jobless benefits climbed to 3.711 million in the week ended October 4. Part of this is due to the government extending the duration one can collect benefits. This would not be an incentive to remain on the dole for most, but surely enough will decide to continue to take the handout instead of looking for less than appealing work that is sometimes the case during times of labor-market weakness.
That said, we should remember that the unemployment rate stands at 6.1%, which is exactly the average of the past 30 years – so its not as if the scenario is as pathetic as often reported. But the way things are shaping up here, especially in the last few weeks, we would expect the jobless rate to rise above 7%. The chart below offers some perspective.
In a separate report, the Labor Department stated the consumer price index (CPI) continued to decelerate last month. The month-over-month reading was flat for September and up 4.9% on a year-over-year basis – both were a bit better than expected. That year-over-year reading is down from 5.4% in the previous month.
Large declines in the fuels components offset significant increases in food components during September – the rise in food prices, almost across the board, over the past few months (up 8.7% at an annual rate past three months) is concerning and may keep CPI from falling to the degree that most expect.
However, the decline in fuels is obviously very encouraging (except for the fact that one reason for the decline is serious deterioration in global growth; the other being the de-leveraging process as funds have to sell that which is most liquid to meet redemption calls).
Yet another release, this one from the Commerce Department, showed industrial production plunged in September, declining 2.8%, marking the largest drop since 1974. Thankfully, much of this was due to hurricane-related shutdowns and the Boeing strike. Hurricane Ike, which hit September 13 forced oil production, utility and other facilities to shutdown – this accounted for 2.25 percentage points of the decline. Adjusting for these events, the decline in industrial production was mild, which is good. Still, no matter how transitory the effect, it will weigh substantially on the Q3 GDP reading; we get the first look at that figure on October 30.
Ultimately, we’ll have to wait for the October data to assess the degree to which current credit and economic events have truly affected the reading.
Have a great weekend!
Brent Vondera, Senior Analyst
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