Daily Insight: Weaker by the Revision

U.S. stocks endured another up and down session but the broad market held on to a late-session bump to close higher for the first session of the week – it was the one of the worst weeks of the year with the Dow down 2.94%, the S&P 500 off by 3.65%, the NASDAQ down 3.74%, the S&P 400 (mid cap) sliding 3.75% and the Russell 2000 (small cap) slipping 3.27%.

Financials led the S&P 500 marginally higher as traders viewed banks had dodged a bullet due to watered down limits on derivatives trading and investing in hedge funds – although banks were going to find a way around this anyway, but likely at a higher cost. (Sorry to say, I don’t think banks will dodge the double-dip housing market bullet.) And with the death of Senator Byrd last night and Senator Brown now expressing doubt he’ll vote yes, FinReg may ultimately come up short of the needed 60 votes in the Senate.

Consumer staples led the four major industry groups that closed lower. The other traditional areas of safety – health-care and utilities – did gain ground for the session.

Did the overall market truly rally on the news Friday morning that FinReg was watered down? I’m not sure as this is a strange market environment; you never know if it’s some algorithmic dollar-down computer order buying (that is, programmed to bid prices higher on dollar weakness – waning of the safety trade), as some suggested and is supported by the chart below. And even though FinReg doesn’t appear to be a worst-case scenario for the economy’s credit outlets, House and Senate Chambers rushed agreement via a Thursday all-nighter, which doesn’t exactly give one the sense that a whole lot of consideration was given – the law of unintended consequences will likely be rife with this legislation, if it ultimately passes.

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Brent Vondera, Senior Analyst
www.acrinv.com