December showing kindness to market
The stock market is taking a breather. The wrenching ups and downs of the past few months have given way to a certain tranquillity in December...
The Associated Press
NEW YORK — The stock market is taking a breather.
The wrenching ups and downs of the past few months have given way to a certain tranquillity in December, offering Wall Streeters a break from the "world-is-ending" days of a few weeks ago.
From Labor Day to Nov. 20, the market plunged 40 percent because of events that terrified investors. From the government takeover of Fannie Mae and Freddie Mac and the bankruptcy of Lehman Brothers in September to the credit freeze in October and dreadful economic reports in November, it seemed the financial system was collapsing.
Now, the government has taken aggressive efforts to shore up the economy, and a severe recession has been factored into stock prices. The wild daily swings common in October and November have eased.
Not even the drumbeat of more bad economic news seems to spook investors lately.
Pronouncing an end to a raging bear market is tricky. But some traders and market strategists are starting to peek out of their bunkers, and they aren't unhappy with what they see.
"There's a sense that this market has bottomed," said Dan Deming, a trader with Strutland Equities in Chicago.
On Monday, the Dow Jones industrial average fell 59.34 points, closing at 8,519, up nearly 13 percent from its low of 7,552 on Nov. 20 but still down 26 percent from 11,544 on the Friday before Labor Day.
The Standard & Poor's 500 index had a somewhat rockier day Monday, falling 16.24 points to 871. That is up almost 16 percent from 752 on Nov. 20 but down 32 percent from 1,283 before Labor Day.
Still, these were performances that were remarkable for being unremarkable. Consider these numbers:
The average daily change in the Dow has fallen from 340 points in October to 206 this month.
The Dow climbed above 8,000 on Nov. 21 and has traded between 8,000 and 9,000 for a month. In September-November, the Dow crossed a 1,000-point threshold — either up or down — 19 times.
The Dow's gain or loss has been less than 100 points in six of the last nine trading days. That happened only three times in November.
The VIX, as the Chicago Board Options Exchange's volatility index is known, traded as high as 89.5 in October. It closed Monday at 44.5.
Trading volume has eased on the New York Stock Exchange. Volume surged in September and October and hit a record 11.2 billion shares on Oct. 10. Daily volume has not risen in December above 6.4 billion shares.
Nobody is saying the bulls are ready to run again. Investors are still contending with a dreadful economy hemorrhaging jobs and consumers reluctant to open their wallets. But investors are greeting the bad news with a better attitude.
"You've seen it on a number of days now for about two weeks where the market has absorbed bad news and just either closed the day a little bit down or some days a little bit up," said Quincy Krosby, chief investment strategist at Hartford Financial Services.
Compare that with the 23 trading days from late October to late November, when the S&P 500 jumped 25 percent in six days, lost 25 percent the next 12 days then shot up 20 percent in five days.
"When we stop quoting daily stock-price changes in percent and start quoting them again in points, that will be a sign of a return to normalcy," said John Osbon, managing partner at Osbon Capital Management in Boston.
Wall Street veterans point to several reasons behind the relative tranquillity.
Trading typically slows at the end of the year and volatility declines. Many investors who sell late in the year do so for tax reasons. This year, they may have sold during the market's plunge in the fall.
Hedge funds have completed selling they needed to do to meet redemption requests from their clients.
Most important of all has been the absence of any unexpected bad news. No Wall Street firm has failed, and the economic news, although awful, is being anticipated.
If history is any guide, the worst of the selling could be over simply because it hasn't gotten worse than this in the 63 years since World War II ended.
The S&P 500 fell 52 percent between Oct. 9, 2007, when it was at a record high, and Nov. 20. During the two worst postwar bear markets before this one, the S&P lost 49 percent in 2000-02 and 48 percent in 1973-74.
What happens in January will be crucial. Wall Street typically looks six to nine months ahead. So stocks start moving up well before a recession ends. Investors will be looking for signs the economy might be starting to mend.
"What I don't know is whether come Jan. 2, when everybody is really back, whether we just launch back into the frenzy of a couple of weeks ago," said Liz Ann Sonders, chief investment officer at brokerage firm Charles Schwab Corp. "From an economy perspective, I think there is a decent chance that the quarter we're in right now is the crescendo quarter."
Copyright © 2008 The Seattle Times Company
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