Courtesy of David Brown, Sabrient Systems and Gradient Analytics
Last week, neither Fed Chairmen Bernanke nor European Central Bank (ECB) President Draghi committed their respective organizations to a specific solution to the economic woes of the U.S. or Europe. President Draghi’s firm statement last week that “the ECB is ready to do whatever it takes to preserve the Euro” lacked substance. Yet, that statement sent the S&P 500 roaring up +3.56% over July 26 and 27.
Doubts over the capabilities of either leader to act crept in last Monday as the market was off a very small amount. It got worse on Tuesday, July 31 (-0.43%) as everyone waited for action from the Fed, the ECB or both. Instead, Bernanke spoke in platitudes on Wednesday, August 1, and the market fell another -0.29%. When the ECB merely chatted about gross generalities and no certainties on Thursday, August 2, the markets fell globally with the S&P 500 down nearly -2% by 10:00 A.M., following horrible markets in Asia and Europe. The realization that nothing was really happening caused investors to exit “en masse” sending the market down 20 points.
To make matters worse, the Knight Trading debacle on Wednesday, which cost the company more than $400M, threatened its very survival as its stock price was down 75% by Friday morning. There’s nothing like a rogue trading algorithm to zap investors’ confidence in electronic trading.
Inexplicably, around noon Thursday, retail stores, on the heels of sordid forward guidance from Abercrombie Fitch (ANF) (whose shares fell nearly 15%), announced a surprising +4.3% gain in July. This figure was nearly triple the expected number. Combined with Wednesday’s positive ADP Employment Report of 163K new jobs in July, exceeding the consensus of 125K, the tide seemed to turn. Maybe investors should focus on the reasonable valuations and ignore the Fed and ECB, assuming that they will eventually do what they promised.
Optimism continued to abound Friday on better-than-expected numbers from the monthly employment report (a gain in non-farm payrolls from the private and public sectors of 335K versus an estimated 205K), and the market rolled forward to close at 1390. Unabated by weekend news and political turmoil, the market climbed very, very close to 1400 before profit-taking sent prices down to a close of 1394, up yet another 3 points.
So, from a low on July 25 of 1337, the market was…
