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The market resumed its free fall after the weekend despite the relative strong performance of the key financial sector. Most emerging markets were faring even worse as evidenced by more than 4% haircut in MSCI Emerging Markets Index. We got mixed economic news this morning. The NY Empire State Index dropped to 10.3 vs. 21.0 expected by the market. Current Account for Q3, on the other hand, came in better than expected and this shouldn’t be that surprising given the weak performance in US dollar during the past quarter. But the Net Foreign Purchases number did provide some surprise to market participants as not only did the inflow of $114 Billion easily surpass the market expectation, the number for the previous month was also revised up by more than $40 Billion. This greatly alleviated fears about potential lack of interests in US assets from overseas investors.
The US dollar is mixed against major currencies, but only on a marginal basis. The US dollar index is now standing above 77 after bottoming out at around 74 three weeks ago. Treasury bonds rallied a little following weakness in equities. Commodities, as a whole, didn’t move much either. But on an individual basis, we saw continuing weakness in base metals, which reflects uncertainty regarding global economy in 2008. Admittedly, it is indeed a tough environment for investors to make money these days. By the closing of last week, the S&P Midcap 400 Index just had a bearish cross (50 ma went below 200 ma) following Russell 2000 on a weekly closing basis. And if the market just stays at this level for one more week, S&P 500 will join them as well. But it is also important to remember that investing is not a straight line: it has ups and downs like ocean waves and it is just as simple as that.
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