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Daily Blog -02/04/09- 1:51 P.M.


Stocks Sideways but for How Long?

The U.S. markets got a boost this morning after European markets surged higher late in the day. Unfortunately for American investors the rally seems to be losing steam. There are a few sectors showing real strength today but most of the action seems lethargic. The markets seem to be waiting for something - either the next big headline out of Washington or possibly the non-farm payrolls (jobs) report this Friday.


-- Major European Indices --
French CAC 40 +2.9%
German DAX .. +2.6%
British FTSE. +1.5%

The major economic report out today was the Institute for Supply Management's (ISM) non-manufacturing businesses (a.k.a. services), which represents the majority of the U.S. economy. Last month the ISM services index hit 40.1 and analysts were expecting a drop to 39 today. Traditionally any reading under 50 signals a contracting economy. The good news this morning was a jump to 42.9 for the ISM services index.

I think Wall Street is unsure what to make of the latest headlines out of Washington D.C. The anger on Main Street U.S.A. over executive compensation at the country's major financial institutions is fueling a lot of rhetoric in Washington. It may be justified.

The New York state comptroller recently showed that senior executive bonuses from major Wall Street companies totaled more than $18 billion in 2008. That was a 44% drop from the year before. A lot of these firms would be bankrupt if they hadn't taken tax-payer money in the form of TARP funds. Do they deserve $18 billion in bonuses if they run their companies into the ground? President Obama's reaction came out today. Obama said he was going to limit executive salaries to $500,000 to those institutions that need excessive help from the government.

Looking back at stocks this afternoon the rally from this morning has definitely rolled over and stocks are accelerating lower. Let's take a quick look at which sectors are moving.


--- Sector Movers ---
OSX oil services  +4.0%
DDX disk drives   +4.0%
XNG natural gas   +2.3%
XAU Gold & Silver +2.3%
XBD broker-dealer +2.1%
Railroad index    +1.3%
BIX banking index -1.9%
RLX retail index  -1.9%
Gambling/casinos  -5.2%

The major U.S. averages are producing what appears to be a lower high. If you look at the charts for the DJIA, S&P 500, and the Russell 2000 they all look the same. Here's a chart of the S&P 500 index.

S&P 500 chart:



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