每日市場點評 --- January 18, 2008

The market continued to slide despite positive earning news from IBM and GE. So far this year, the S&P 500 has dropped 9.8%, marking it the worst-ever start for any given year. Dow Jones Industrial Average doesn’t fare much better either and it has dropped 8.8% so far. Nasdaq, which performed best among three major indices last year, posted a loss of 11.5% year-to-date. On a broader measure, the Wilshire 5000 Index was down 10.2%. It looks more and more like a bear market now rather than a correction in a bull market for several reasons. First, the market cannot hold onto good news. There is an old saying on Wall Street that in bull market, good news is good news and bad news is good news while in bear market, bad news is bad news and good news is bad news. Apparently we have this latter issue now. Second, the market has broken through many technical support levels without any meaningful rebounds and many market sentiment indicators were worsened, and worsened rather quickly. Third, unlike early 2007, when the market mainly saw declines concentrated on home building and financial sectors, currently we have almost every industry in S&P that has experienced at least a 10% correction. Only consumer staples and several defensive sectors are relatively doing ok but those are industries typically outperforming the broad market during the bear market. This broad decline is a typical sign of a bear market.

Although it sounds quite pessimistic, we do have several positive factors in place. First, the market multiple is quite reasonable, especially compared with other asset groups such as treasuries. Second, monetary stimulus and fiscal stimulus are on their way. The Fed is widely expected to aggressively cut interest rates and bring the Fed fund rate from its current 4.25% to 3% level during the next few months. On the fiscal side, Bush administration has proposed a $150 Billion growth package aimed to boost consumer spending. Third, there is simply too much money sitting on the sideline. A record level of more than $3.2 trillion dollars is currently invested in money market funds. In addition, we have a new army called sovereign wealth funds that is equipped with more than $2.5 trillion dollars actively seeking better investment opportunities. Unless the dollar is in free fall, those funds may well grab more shares of US assets at current prices.

Sounds conflicting? It is. Market always contains conflicting information no matter it’s a bull market or bear market. But given the near term uncertainty ahead, it’s probably not a bad idea to scale back and wait for more clear signals. With Dow quickly approaching 12K level, a break of that level may trigger a retaliation rebound. But how long the rebound can hold will depend on the market sentiment at that time. As for next week, which is a shortened one due to Martin Luther King Day on Monday, we have little economic news but we do have several high profile earning reports including Apple and Bank of America on Tuesday, EBay and Motorola on Wednesday, and Microsoft on Thursday. Stay tuned!