Ups and Downs Keep Market Neutral

fed rate increaseIt most scenarios, a week like the one we experienced (in regards to earnings), would usually yield strong gains in equity markets. Most all of earning reports were far better than expectations, as well as pretty decent guidance numbers. So far, it is estimated that 72% of the companies from the S&P 500 that have reported 4th quarter earnings exceeded expectations. However, even with what looks to be decent earnings, the markets are still at odds with each other.

Markets were a little uneasy after the Fed's announcement that it will be raising interest rates. It will be very interesting to see how the economy responds to a bit of pressure being put on government bailouts. After markets dashed down this morning following the announcement, it quickly regained its strength and stayed in the green most of the day. We also saw a "very convenient" rally to pull the market out of the red right before close, which was a very sharp turn around.

The transparency of earnings reports is the reason why investors are no longer cheering for better than expected reports. First of all, now we are comparing numbers to a very dismal 2009, which if companies were to do just as bad in 2010, would most likely result in a bankruptcy. Also, many companies are still adjusting 2010 forecasts (decreasing expectations), even when prior estimates had been made not more than a month ago. Companies are seeing that even with the existence of upward trending earnings, a sluggish 2010 is in our near future. My belief is that best case scenario, we are about as stable as we are now.

The rally which we saw at the end of 2009, in my opinion, was bolstered up to higher levels due to too much optimism. It is very easy to get caught up in the notion of a swift recovery, especially after experiencing one of the worst down turns in 70 years. However, with too much optimism, came buying at unhealthy levels and has now left us with a top heavy market. Now, we find us in a position where we don't really know where we are, we just hope that it gets better. If the government continues to slow the bailouts, we will begin to see just how sluggish this economy really is. As a result, Treasuries are rebounding as investors or steering clear of riskier investment vehicles at this point.

CPI data remained rather flat, which shows just how much deflation is taking place, when you consider all of the government spending and extra printing of currency, a flat CPI number shows the offset with deflationary indicators. No, we are not out of the woods for deflation. I expect to see a more aggressive week next week...investor's money is getting itchy. Happy Trading.


  1. Anonymous Says:

    please take a look at this:

    What do you think?


  2. Finance Fanatic Says:

    It is clear to me that a lot of mistakes and manipulation is taking place in our markets. The amount of money it takes to push markets up, compared to the amount it would take to actually repair all the companies that are listed on the Dow or S&P, is non comparable. To me, it makes perfect sense why they would. That is if you don't get caught, then watch out!


    The fed has lost its head.