Tuesdays Continue to Rule
Posted by Eddy Elfenbein on October 5th, 2011 at 1:10 pm

Thanks to yesterday’s late-day rally, the Tuesday Effect continues to rule the market. While the market has done poorly since April 29th, Tuesdays, on average, have been very good.

Here are the returns by day of the week since the market topped on April 29th.

From the April 29th top to yesterday’s close, the S&P 500 is down 17.58%. My guess is that the Tuesday Effect is due to the political nature of this downturn. Bad news strikes over the weekend due to some decision made in Europe or Washington. Stocks then sell off on Monday and subsequently rebound on Tuesday.

The Average Bear Market
Posted by Eddy Elfenbein on October 5th, 2011 at 10:49 am

Some interesting stats from Mark Hulbert:

The bad news: The average bear market since 1900 has lasted 410 days, according to calculations conducted by Ned Davis Research. Since 158 days have already elapsed since the bull market high on April 29, that means that — if this is a bear market and its length is precisely average — we have another 252 days to go.

That places the bottom of the bear market on June 12 of next year.

How much further down does the stock market have to go if this turns out to be an average bear market? Again according to Ned Davis Research, the average bear market loss since 1900 has been a decline of 31.5%.

Bonds Vs. Stocks
Posted by Eddy Elfenbein on October 5th, 2011 at 10:28 am

Here’s a quick-and-dirty valuation metric. I looked at the total return of the Wilshire 5000 and divided it by the total return index of the Merrill Lynch 15+ years Corporate Bond Index.

Stocks and bonds are in a perpetual war with each other for investors’ money. Over the past 15 years, stocks have started to outperform bonds (meaning the line rises) at about the level we’re at now.

Morning News: October 5, 2011
Posted by Eddy Elfenbein on October 5th, 2011 at 6:09 am

Merkel Says Euro Bonds No Endgame for EU Woes

Banks in Europe Face Huge Losses From Greece

Dexia Moves Debt Crisis From EU Periphery to Core

In Europe, Signs of 2nd Recession With Wide Reach

ECB Lends $500 Million to One Euro-Area Bank in Weekly Tender

Italy Says Moody’s Downgrade Was Expected; Working On Austerity Plan

U.K. Economy Expands 0.1%, Less Than Previously Estimated

U.K. Retailing Giant Tesco Profit Gains on International Businesses

Nymex Oil Futures Up More Than $2 On Bullish Industry Report

Gold Slides 1% as Volatility Spooks Investors

Hope Rising, Stores Hire for Holidays

In Deal With Ford, Union Wins Wage Increases and Additional Jobs

Pakistan Terror No Bar for Unilever, Nestle

Jeff Miller: Profiting from the Confusion over Europe

Cullen Roche: BUFFETT: THE RECOVERY CONTINUES UNABATED!

Be sure to follow me on Twitter.

CWS Buy List +4.15% Today
Posted by Eddy Elfenbein on October 4th, 2011 at 11:17 pm

Since March 17, 1998, the S&P 500 has gained 4.02% (excluding dividends). That entire gain came during the last 45 minutes of trading today.

Our Buy List did extremely well. Our 20-stock portfolio gained 4.15% today which was 190 basis points better than the S&P 500. That’s the single-biggest out-performance spread in two-and-a-half years.

Here’s a look at how our 20 stocks fared:

Rough Patch of the Election Cycle
Posted by Eddy Elfenbein on October 4th, 2011 at 3:09 pm

We’re currently in an historic rough patch of the presidential election cycle. From September 6th of the pre-election year until May 28th of the election year, the Dow has lost an average of 5.2%.

Historically, the Dow has gained an average of 24.1% from September 30th of the mid-term election year to September 6th of the pre-election year. This means that nearly two-thirds of the Dow’s four-year gain (24.1% of 36.7%) comes in less than one-quarter of the time. That’s a pretty stunning stat.

After September 6th of the pre-election year till May 29th of the election year, the Dow has historically pulled back 5.2%. After that, it puts on a nice 23.2% climb to August 3rd of the post-election year. Then trouble starts. After August 3rd, the Dow pulls back 5.6% and we’re back at our starting point, September 30th of the mid-term election year.

Small-Caps Strike Back
Posted by Eddy Elfenbein on October 4th, 2011 at 2:41 pm

Yesterday I wrote about the huge divergence between large-caps and small-caps. The Russell 2000 ($RUT) plunged 5.38% while the S&P 500 lost a measly 2.85%. That’s a big spread for one day.

Today, the small-caps are getting their revenge.

Bernanke Warns
Posted by Eddy Elfenbein on October 4th, 2011 at 1:04 pm

Bernanke warns Congress not to cut too much now

Bernanke warns Congress against deep budget cuts in weak economy

Bernanke Warns Congress: More Sluggish Job Growth Ahead

Bernanke Warns US Congress Against Cutting Too Much Too Soon

Bernanke Warns Spending Cuts Could Derail Recovery

Bernanke Warns US Unemployment is a ‘National Crisis’

Bernanke Warns America of Risks to Economy

Bernanke Warns Jobs Recovery Could Take Years, Urges Action on Deficit Problems

Bernanke Warns GOP Not To Play Politics With Debt Ceiling

Bernanke Warns Markets Threaten Weak U.S. Economy

Bernanke Warns That Regulators Must Avoid Burdensome Rules When Enacting Financial Reform

Bernanke warns: US Deficit ‘Not Sustainable’

Bernanke Warns of Inflation Risks

Stocks Fall as Bernanke Warns About Oil Prices

Bernanke Warns of Catastrophe if Debt Limit Not Raised

Bernanke Warns Against Steep U.S. Budget Cuts

Bernanke Warns on Debt-Limit ‘Chaos’

Ben Bernanke warns US of risks from weak house prices and ailing banks

Bernanke Warns of High Budget Deficits

Bernanke Warns of Devastating Economic Collapse

Bernanke Warns of Threat from Deficit

Ben Bernanke Warns of Looming Economic Crisis

Fed Chairman Ben Bernanke Warns Against Hasty Action on the US Deficit

Bernanke Warns U.S. of ‘Unsustainable’ Debt Level

Federal Reserve Chairman Ben Bernanke Warns Congress that the Federal Reserve Will Not “Print Money” to Pay for the Exploding U.S. National Debt

Bernanke Warns About Creating New Bubbles

Bernanke Warns Against Narrowing Fed Focus

Bernanke Warns of Small-Bank Risks

Bernanke Warns Economic Outlook ‘Uncertain’

Bernanke Warns of Tax Hikes or Benefit Cuts to Deal With Deficit

Bernanke Warns of Need for Monetary Tightening

Bernanke Warns Mortgage Rates Could Rise on Debt Worries

Ben Bernanke Warns Hedge Fund Billionaires

Greenspan Home Robbed

Bouncing Around Is What Markets Do
Posted by Eddy Elfenbein on October 4th, 2011 at 12:49 pm

Chao Deng in the Columbia Journalism Review:

“The idea that all of a sudden people got the idea that Bernanke was going to do something, to me, is just kind of crazy,” Miller said later when I reached him on the phone. “There is too much meaning inferred from what is normal volatility or variation.”

A better explanation for the Tuesday rally was that the huge stock sell-off in early August had set up markets for a relief bounce. After seeing a bit of upside, some investors got antsy enough to want to jump back into equities. And when stocks ran up so sharply at midweek, some decided to take profits, as the saying goes, and get out.

In the end, bouncing around is just what markets do, isn’t it? That’s why I don’t blame sources when they decline to talk about intraday movements. I’ve encountered a handful of long-term portfolio managers who scoff at the very idea of reporting on daily market movements. The strategists who do talk do the best they can. Sometimes, if no macro explanation presents itself, they resort to talking about individual stocks or sectors.

100% correct.

Keynes on the Gold Standard
Posted by Eddy Elfenbein on October 4th, 2011 at 11:03 am

(via Matt Yglesias)