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Ever find yourself acknowledging that you don't know whether to make heads or tails of something? That pretty much sums up the market these days.
It is struggling for direction as it tries to assess whether the market falling as much as 53% from the all-time high reached in October 2007 has adequately discounted all of the lousy economic and earnings news we are now hearing and will continue to hear. And boy was there lousy economic news this week.
The ISM Index, a survey of national manufacturing conditions, got things started Monday as it fell to 36.2% -- its worst reading since 1982 and well below the 50% mark that is seen as the dividing line between a manufacturing sector that is expanding or contracting.
That was part of the reason why the market fell apart Monday, dropping 8.9% on the heels of a five-session winning streak that saw the S&P gain as much as 21% from its Nov. 21 low. Unfortunately, there were several other reasons for the selloff.
First and foremost, the weakness was consistent with the market's inclination to sell into strength. Beyond that, selling efforts were greased by another bearish call on the financial sector's prospects from influential Oppenheimer & Co. analyst Meredith Whitney and speeches from Fed Chairman Bernanke and Treasury Secretary Paulson that suggested more could still be done to jumpstart the credit market and the broader economy.
It is good to know, of course, that more can still be done, but with all that has been done thus far, it was a bit unsettling for the market to think that more still needed to be done. That thought alone provided a good enough excuse to sell into the prior week's strength.
The NBER, meanwhile, finally made its official recession declaration, saying the recession in the U.S. began in December 2007. This was cited as a major reason for Monday's selloff, but that was giving the NBER headline more credit than it was due since the market reached the conclusion the economy is in recession a long time ago.
Bernanke's observation that the Fed, with limited room to cut rates further, could follow an unconventional method of buying large quantities of long-term Treasuries to drive down rates, and pump money into the banking system, simply played into the market's concerns about the length and depth of the recession.
At the same time, his remark fueled a run on Treasuries during the week that saw the yield on the benchmark 10-year note hit its lowest point (2.505%) in over 50 years.
There was enough going on Monday to call it a week; fortunately for the bulls, there was a lot more trading action to come.
Fortunately for the bulls, too, the trading action didn't necessarily follow form with a lot of the major headlines.
Auto sales were dismal in November, highlighted by a 41% decline in GM's sales. The Beige Book reported an overall weakening in economic activity across all Federal Reserve districts. The ISM Services Index hit its lowest level on record.
According to Thomson Reuters, November same-store sales declined 2.1%, which was the worst reading since it started collecting data in 2000. Continuing claims for jobless benefits reached a 26-year high. The percentage of loans in the foreclosure process (2.97%) hit a new record in the third quarter.
Research In Motion (RIMM), Merck (MRK) and DuPont (DD) all issued earnings warnings. AT&T (T) announced plans to cut 12,000 jobs and several other companies said they would also be trimming their payrolls.
The worst headline of the week, though, was Friday's news that nonfarm payrolls declined by 533,000 in November, the largest monthly decline since December 1974. Downward revisions to the October and September reports were also made, bringing the cumulative 3-month job loss to 1.28 million. The unemployment rate in November rose to 6.7% from 6.5%.
As one might expect, the employment headlines pushed the major indices lower in early trading Friday. The Dow declined as many as 257 points; however, it soon reversed course and actually ended the day with a 259-point gain.
The silver lining for some in the ugly jobs number was that it seemed to ensure there would be a very large stimulus package passed when President-elect Obama takes office in January.
Remarkably, after suffering the huge loss Monday, the market traded in a pretty resilient manner the rest of the week. We won't say that it completely ignored bad news, but it certainly didn't get too bent out of shape by bad news.
It wasn't all bad news this week either.
General Electric (GE) reaffirmed its dividend is safe, mortgage applications soared 112% from the prior week, Black Friday sales were said to be stronger than expected, and a number of central banks, most notably the Bank of England and the European Central Bank, made aggressive cuts to their key lending rates.
There was also a report that the U.S. government is exploring the idea of implementing an initiative that would help drive mortgage rates for conforming purchase loans as low as 4.50%.
Speaking of driving, the CEOs of the Big Three automakers returned to Washington this week to continue their plea for government aid. There wasn't any closure on the matter, but given the November employment report, it strikes us as likely that Congress will ultimately agree to provide a lifeline of some sort.
So, a week that began with a whimper -- or really a wail -- ended with a bang.
Between Tuesday and Friday the S&P 500 increased 7.3%. The financial sector, after suffering a 17% decline on Monday, ended 0.8% higher than its closing level last Friday. The retail sector, meanwhile, tacked on 6.0% this week as oil prices slumped another 24% to $41.55 per barrel.
Because of the large loss on Monday, the market still ended down for the week. Given the escalation of bad news during the week, though, it was a moral victory of sorts that the market recouped a significant portion of Monday's losses amid a lot of discouraging headlines.
The feeling isn't quite like Harvard beating Yale 29-29, but it's close knowing how the week started and considering it's tough to imagine the body of news getting much worse in the coming week.
--Patrick J. O'Hare, Briefing.com
**For interested readers, the S&P 400 Midcap Index, which isn't included in the table below, ended down 3.2% for the week and is down 42% year-to-date.
| Index | Started Week | Ended Week | Change | % Change | YTD % |
| DJIA | 8829.04 | 8635.42 | -193.62 | -2.2 | -34.9 |
| Nasdaq | 1535.57 | 1509.31 | -26.26 | -1.7 | -43.1 |
| S&P 500 | 896.24 | 876.07 | -20.17 | -2.3 | -40.3 |
| Russell 2000 | 473.14 | 461.09 | -12.05 | -2.5 | -39.8 |
