Stocks continued their meandering trek to nowhere last week, again ending about where they started.
Monday, the world held its collective breath awaiting word Tuesday and Wednesday from Ben Bernanke as he testified before Congress. Despite the lack of stock market movement or volume, Facebook resumed its rightful descent to hell—falling 8% on an otherwise quiet trading day. In other perverse action, the 10-Year U.S. Government Treasury Bond rate dropped over 2% to close at 1.46. Retail sales fell in June for the third straight month.
Stocks rose a bit worldwide Tuesday on more hope of hints from Bernanke of more central bank stimulus. Since no hints were forthcoming, the excuse for the rise became negative earnings better than expected and Bernanke’s grim outlook morphing to the bad news is good syndrome. U.S. stocks gained about 0.5% at low moderate volume. Fear slid back to about 16.
Wednesday, Asian stocks closed little changed, but European stocks shot up well over 1% for no particular reason. U.S. stocks followed suit but less than 1% on low moderate volume. The excuse for the rise related to some of Bernanke’s comments. IBM showed a nice gain before the close as traders speculated on a good quarterly report. While earnings rose, revenue for IBM again declined—this time by 3%. By “adjusting for currency” IBM reported a bright picture but if you actually look at their quarterly report it’s replete with negative numbers.
All is not well in la-la land. Other technology stocks also did well, but banks faltered. Speaking of la-la land, Facebook moved up Wednesday by over 3.5%. The S&P 500 Index sits just slightly below its upper Bollinger Band. Over the course of the last four months, whenever the index reached that lofty level, it promptly retreated. With the lack of fundamental explanation for this current rally, poor earnings, negative outlooks, and a lot of smoke-and-mirrors from central banks, it’s hard to anticipate much positive movement from here.
Stocks in Asia followed the move in the U.S. the day before—rising around 1% on Thursday. Despite an abysmal Spanish bond auction and the 10-year bond rate again moving above 7%, stocks in Europe plowed ever higher—up over 0.5%. Another dismal jobless claims report gave investors pause, but failed discourage the current risk-on party. U.S. stocks banked about a 0.5% gain on moderate volume. AAII investor sentiment though made a decisive negative move to register strongly bearish.
Friday, stocks in Asia retreated about 1% and Europe 2% on fear. U.S. stocks fell 1% to return to about where they started the week as reality replaced euphoria. The VXO fear index at 16 ended the week about where it started.
You’ll need to put your thinking cap on for this one, but here’s a good article on the curse of falling interest rates.
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