Stocks should be crushed by global turmoil, Jim Cramer says. Instead, they're doing fine.
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After one of the worst sell-offs in history, a look at what's next.
Wall Street traders returned to work Monday in the mood to sell after mulling the consequences of America's first-ever credit downgrade last week. Main Street investors, with a mix of fear, anger and uncertainty, piled on, too.
The result was one of the deepest sell-offs in market history and a continuation of a now 3-week-old wipe-out for stocks. Out of the 3,085 issues that trade on the New York Stock Exchange, just 42 managed to move higher. That's less than 1.4%. And that's the worst result in more than 70 years.
Over the past 11 trading days, the Dow Jones Industrial Average has lost nearly 1,900 points, falling to levels not seen since September 2010. That's a drop of nearly 15% -- enough to nearly wipe out the gains from the Federal Reserve's most recent $600 billion stimulus. This is a drop on par with the 2008 financial crisis, the 1987 Black Monday crash and the various Great Depression meltdowns.
For beleaguered investors, the question is: When does this nightmare end?
Even a key announcement from the European Central Bank doesn't calm global stock markets.
In Hong Kong, the Hang Seng finished down 2.17%, which was the best level of the day.
The Shanghai Composite tumbled 3.8%. The index is now down 21% from its peak.
Brazil’s Bovespa continued its recent record as the world’s worst performing stock market, falling another 5% as of 11 a.m. ET.
We've seen 3 straight trading days of stunning jumps.
Monday saw the highest level for the Chicago Board Options Exchange Volatility index since May of last year. And this is after two days of major increases Thursday and Friday.
Investors look at the VIX as an indicator of volatility expectations for the next month. It's a good way to gauge investor sentiment, and right now the lights are flashing red.
In fact, the entire VIX futures curve shows inversion, the Financial Times reports. One investment manager told the newspaper that negative convexity across the entire curve usually occurs only "during systematically important shock events such as the 2008 financial crash, Bear Stearns bankruptcy, 2010 flash crash, and the 2007 credit market meltdown."
Women's skirts, which some people say are a stock market indicator, were trending long heading into summer.
The skirts at stores this season are all trending long, Jezebel points out. And the "hemline index," popularized by an economist in 1926, says that when skirt hemlines drop, so do the markets.
The HowStuffWorks site explains the correlation a little more. When the micro miniskirt became popular in the 1960s, the market was up. But long skirts were in vogue around the time of the Arab oil embargo in 1972. There are other examples throughout the decades.
Check out the popular skirts at some of the major retail chains right now. At Anthropologie, they range from below the knee to ankle-length. Macy's (M) skirts are also conservative.
The president says the nation can pay its debts. What needs to change is the lack of political will in Congress.
S&P doesn't doubt the nation's ability to pay its debt, Obama said. But after witnessing a month of drama over raising the debt ceiling, the agency doubts the nation's political system's ability to act.
Obama quoted investor Warren Buffett, who recently said that he would give the United States a quadruple-A rating if there were one (AAA is the highest). Obama said he and most of the world's investors agree.
Jittery ETF investors will be looking to the markets to see if there will be a repeat of Thursday's plunge.
By Don Dion, TheStreet
Here are five exchange-traded funds to watch this week.
To say that the past week's market action was rocky would be an understatement. Although investors were greeted to a strong employment report late in the week, it is likely that the broad market's steep plunge on Thursday is the event that is lingering on the minds of most.
Over the past few weeks, gains have been few and far between for SPY, SPDR Dow Jones Industrial Average Index ETF (DIA) and PowerShares QQQ (QQQ) as analysts, market commentators and investors continue to question the strength of the global economic recovery.
Here are three names that should glitter brightly over the long term.
Ready for a remarkable statistic? According to data from IndexUniverse.com, Gold exchange-traded funds collected some $3.5 billion worth of new assets during the month of July, with SPDR GLD Shares (GLD) getting $2.8 billion of it. That made SPDR GLD the second-most popular ETF last month, behind only the wildly popular SPDR S&P 500 (SPY).
This, however, makes sense. With the world uncertain about whether the United States would or would not raise its debt ceiling, many undoubtedly gave up on U.S. bonds and equities and instead sought out the protection that gold offers.
Having said that, one might expect that with a debt ceiling deal reached, money might start flowing back out of gold and into bonds and equities. In fact, just the opposite is happening. Gold ETFs collected another near $1 billion worth of assets on Aug. 2, the day after President Barack Obama signed the debt ceiling deal into law, while SPDR S&P 500 gave back more than $2 billion to investors. This action is not only an indictment of the process and result of the debt ceiling compromise, but also evidence of just how pessimistic the market is about the U.S. economy.
High-profile investors and top officials deliver fast and furious responses, though the ratings agency does have a defender or two.
For Warren Buffett and others, that's been the response to Standard & Poor's decision Friday to downgrade the U.S. credit rating by one notch to AA-plus from AAA.
Observers immediately jumped all over S&P for going where other ratings agencies would not, for getting too involved in politics and for unnecessarily making things worse.
Strategists outline their views on financial stocks after S&P's downgrade of US credit.
By Shanthi Bharatwaj, TheStreet
However, Goldman Sachs (GS) analysts noted in a report that as bad as things are, this is not the 2008 crisis all over again.
"While the '2008 all over' comments have increased, we believe the situation is different -- bank balance sheets have much higher liquidity, better funding mixes (almost no reliance on short term funding), improved capital and reserve levels and less exposure to leveraged losses. All of these should help reduce excess volatility near term," the analysts noted.
Goldman believes banks should still be able to meet their funding needs, although rating downgrades for major banks remain increasingly likely after the U.S. downgrade.
What are the consequences of the downgrade?
I have received many emails and a few calls from friends, asking one question: What are the consequences of the downgrade? So I decided to put my thoughts on paper. I break up the consequences into three categories: fundamental (the impact on the economy), emotional (the short-term impact on the market), and political (will it change anything in Washington DC?).
Fundamental: AA+ is the new AAA.
The Fed and the FDIC set bank reserve requirements; they decide what is quality and what is not on banks’ balance sheets. To little surprise, a few hours after the downgrade, the Fed and FDIC announced that AA+ US debt is as good as AAA, and thus banks’ reserve requirements will not change and bank lending should not change either. Though we’ll probably get a few downgrades of financial companies holding US treasuries, the direct impact on financial institutions should be negligible.
It's time to trim your portfolio, but make a watchlist of what to buy later.
Recently I had to delete 2 stocks from my Wall Street Survivor portfolio for very negative price momentum and Barchart technical sell signals.
Two of Big Pharma’s finest are looking quite oversold at current levels, and while risk remains, both pay handsome yields and maintain sky-high cash positions.
Faith in Treasurys remains strong as investors seek out safer assets.
By Chao Deng, TheStreet
Uncertainty about the health of the global economy has rattled investors, heightening the attractiveness of Treasurys as a haven asset. The benchmark 10-year note was last rising 25/32, diluting the yields to as low as 2.48% in early trading Monday.
The market had anticipated the move by Standard & Poor's before the ratings agency made its downgrade announcement late Friday. Many analysts are noting that the decision does not make a fundamental difference to how investors view Treasurys.
Pervasive pessimism calls for the brave to consider purchasing shares that have been punished too harshly.
By Chris Stuart, TheStreet
Standard & Poor's downgraded America's triple-A credit rating for the first time Friday, almost $1 trillion was wiped off the benchmark S&P 500 Index ($INX), and a key jobs report confirmed the economy is limp.
With stocks having strongly rebounded from their March 2009 lows and the Federal Reserve predicting accelerating economic growth in the second half of this year, expectations had been high just a few months ago. Instead, stocks are now down more than 10% from this year's peak -- producing the first correction in more than two years -- throttled by Thursday's 500-point-plus nose dive in the Dow Jones Industrial Average ($INDU) that did as much emotional damage as financial.
Sure, the news is grim. But it would be foolhardy not to take a step back and see if there are any opportunities in the stock market. And even though confidence in Fed chief Ben Bernanke, President Barack Obama and Congress is shaken, chief market strategists at 13 big banks forecast the S&P 500 will rise 17% through Dec. 31, the average estimate in a Bloomberg survey taken Friday.
So let's step away from the scary R-word -- recession -- for a minute and assess the damage that has been done. I screened stocks over the past 10 days that have fallen more than 10% and may have been unfairly punished. Here are at least four companies that are worth another look:
As markets tumble, a fund manager recommends shares of 10 companies, including AT&T, Verizon and McDonald's.
By Robert Holmes, TheStreet
Oliver Pursche, the manager of the $20 million GMG Defensive Beta Fund (MPDAX), said one of his largest clients phoned him late Thursday, concerned about the sharp sell-off in equities. Like most individual investors who were lost and blindsided by the bleeding, Pursche's client was looking for direction.
"He was very nervous. He wasn't quite freaking out, but he said, 'Oliver, this is one of the times I need you to tell me everything is OK,'" Pursche said by phone Friday from his office in Suffern, N.Y.
In the time since that broad drop in stocks Thursday, uncertainty about the future has been ramped up after the decision by Standard & Poor's late Friday to strip the U.S. of its prestigious triple-A credit rating.
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[BRIEFING.COM] The S&P 500 (+0.3%) remains near its best level of the session, while the Dow (-0.1%) remains in the red.
Since our last update, the International Monetary Fund has lowered its growth forecast for the U.S. to 1.7% from 2.0% and said the Fed may need to delay its first rate hike due to the contraction that took place in the first quarter. Furthermore, the IMF described the U.S. labor market as 'reasonably healthy.'
The remarks had little impact on equities as ... More
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