“Of the 170 companies that have reported earnings, only 45% beat estimates, which, if it persists, will make the fourth quarter the worst in more than a decade, says Bespoke Investment Group,” Tan reports. “Those beating projections were rewarded with one-day pops averaging 4%, but those missing the mark were drubbed 6.9%, and the market shows its bearish tilt in the average 1.2% decline for all reporting stocks.”
“‘While we’re rooting for the new president and his proposals, it seems quite an audacious notion to believe that the market is merely retesting its November 2008 low,’ says John Roque of Natixis Bleichroeder. The real audacity of hope lies in ignoring deteriorating technical indicators: After peaking near 1200 last October, the pool of Big Board stocks plumbing new lows shrank nicely to 14 in early January but has since started to turn higher. The S&P 500 briefly broke above its 50-day moving average only to falter and fall back — a failure that doesn’t bode well for upward momentum. Financial stocks that once made up 22.3% of the market had shriveled to just 9.7%,” Tan reports. “Can the market heal if financials don’t?”
Tan reports, “he post-election year has historically been the toughest for stocks, and weakness is even more pronounced with first-term presidents. The Dow fell by a median 5% in the inaugural year of eight postwar first-term presidents, compared with a 1% retreat in the same year for all postwar presidents, notes Edward Kerschner of Citigroup’s global-wealth-management unit. In contrast, the Dow’s median change in Year 3 for all post-war presidents is a 17% gain.
The letdown can be more acute for new administrations shouldering great expectations. At about 38%, the chasm between Obama’s and George W. Bush’s approval ratings is the widest in six decades. But big popularity gaps of 10% or more didn’t help an incoming President Eisenhower (the Dow fell 4% in his first year). Nor did it help Reagan (-9%), Carter (-17%) and Nixon (-15%), although the Dow did rally 19% in 1961 under Kennedy. So as the world looks to the new president to solve the banking crisis and save the economy, let’s wish for a stock-market precedent, but let’s mind the gap between expectation and reality.
Full article here.
[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
– January 22, 2009
