本文发表在 rolia.net 枫下论坛Oct 1, 2007
Contrarian Thoughts on Dow’s Record Close
Wall Street began the fourth quarter with a huge rally today, sending the Dow Jones Industrial Average to a record closing high of 14,087.55, surpassing its previous record of 14,000.11 set in mid-July.
Investor confidence was buoyed by the prospect of a further rate cut at the Fed’s upcoming Oct 30-31 meeting as well as the belief (or hope) that the worst might be over from this summer’s sub-prime mortgage crisis and credit crunch. The following are some of the drivers behind today’s rally:
- The U.S. ISM manufacturing index registered at 52 in September, which is lower than 52.9 in August, the lowest in six months, and below forecast of at least 52.5
- Citigroup warns that earnings will fall 60% in the third quarter after taking losses of morn than US$3 billion from the write-down of securities backed by underperforming mortgages and loans tied to corporate buyouts
- Swiss bank UBS A.G. said it will post a third-quarter loss of up to $690-million partly due to losses linked to U.S. subprime mortgages
- Nokia agreed to buy Chicago-based digital mapmaker Navteq for $8.1 billion
Contrarians always look at things differently. The following are my takeaways:
The sluggish September ISM reading is yet another piece in a slew of economic numbers that have hit the market of late and pointed to a slowdown of the U.S. economy. Sure, the stock markets usually get a boost from a rate cut, or the prospect of it, but the ultimate driver of stock prices are corporate earnings, which are generally tied to economic climate. With the economic engine cooling off, it is hard for stocks to sustain their lofty levels.
To add to my suspicion, analysts forecast profits for the S&P 500 to increase by only 3.9 per cent during the third quarter (Globe & Mail, B8, Oct 1, 2007), which will be the slowest growth since the second quarter of 2002, when earnings increased by only 1.2 per cent. Brace for a weak U.S. profit season.
The Citigroup and UBS profit warnings may be just the tip of an iceberg. The meltdown of the U.S. residential housing market is already a known fact; what remains uncertain is how much damage will be spilled over to the broader economy. The economy may be resilient enough to cushion the blows; however, to think that the subprime mortgage crisis and the resulting credit crunch are behind us is wishful thinking at this moment.
A bull market often ends in euphoria. Given that the Dow’s record level is buoyed more by investor sentiments than by economic fundamentals, it pays to err on the caution’s side.更多精彩文章及讨论，请光临枫下论坛 rolia.net
Contrarian Thoughts on Dow’s Record Close
Wall Street began the fourth quarter with a huge rally today, sending the Dow Jones Industrial Average to a record closing high of 14,087.55, surpassing its previous record of 14,000.11 set in mid-July.
Investor confidence was buoyed by the prospect of a further rate cut at the Fed’s upcoming Oct 30-31 meeting as well as the belief (or hope) that the worst might be over from this summer’s sub-prime mortgage crisis and credit crunch. The following are some of the drivers behind today’s rally:
- The U.S. ISM manufacturing index registered at 52 in September, which is lower than 52.9 in August, the lowest in six months, and below forecast of at least 52.5
- Citigroup warns that earnings will fall 60% in the third quarter after taking losses of morn than US$3 billion from the write-down of securities backed by underperforming mortgages and loans tied to corporate buyouts
- Swiss bank UBS A.G. said it will post a third-quarter loss of up to $690-million partly due to losses linked to U.S. subprime mortgages
- Nokia agreed to buy Chicago-based digital mapmaker Navteq for $8.1 billion
Contrarians always look at things differently. The following are my takeaways:
The sluggish September ISM reading is yet another piece in a slew of economic numbers that have hit the market of late and pointed to a slowdown of the U.S. economy. Sure, the stock markets usually get a boost from a rate cut, or the prospect of it, but the ultimate driver of stock prices are corporate earnings, which are generally tied to economic climate. With the economic engine cooling off, it is hard for stocks to sustain their lofty levels.
To add to my suspicion, analysts forecast profits for the S&P 500 to increase by only 3.9 per cent during the third quarter (Globe & Mail, B8, Oct 1, 2007), which will be the slowest growth since the second quarter of 2002, when earnings increased by only 1.2 per cent. Brace for a weak U.S. profit season.
The Citigroup and UBS profit warnings may be just the tip of an iceberg. The meltdown of the U.S. residential housing market is already a known fact; what remains uncertain is how much damage will be spilled over to the broader economy. The economy may be resilient enough to cushion the blows; however, to think that the subprime mortgage crisis and the resulting credit crunch are behind us is wishful thinking at this moment.
A bull market often ends in euphoria. Given that the Dow’s record level is buoyed more by investor sentiments than by economic fundamentals, it pays to err on the caution’s side.更多精彩文章及讨论，请光临枫下论坛 rolia.net