Wednesday, April 16, 2008

Stocks Surge On Good News

The Dow Surged 256 points, NASDAQ up 64, and S&P gains over 30. Certainly an impressive day for major equities!

So, why the surge?

Well, according to the Mainstream media, Intel and JP Morgan both reported strong earnings and were the primary drivers of the rally. Intel was up 6% and JP Morgan gained 7% on the day.

So, what "specifically" was the good news for JP Morgan?

Let’s take a look:

JP Morgan profits dive 50% on mortgage losses

JPMorgan Chase reported a 50 per cent drop in its first quarter profits as America's third biggest bank took a $5.1 billion (£2.5 billion) writedown against investments in mortgage-backed securities and its portfolio of homeloans.

The US investment bank, which last month bailed out former US rival Bear Stearns, said today that first quarter profits for the three months to March fell to $2.37 billion compared with $4.79 billion during the first quarter last year

Well that certainly wasn't “Good News”.

What about Intel?

Intel profit narrowed in the first quarter, but the chipmaker posted sales that were slightly ahead of Wall Street expectations and rebutted fears of a tech spending slowdown with a strong sales outlook for the current quarter…

That wasn’t bad news, but it certainly wasn’t good either.

Could something else be responsible for the dramatic rally today?

Lets peruse today's business news releases and find out…

1) Oil price crosses 115 dollars for first time on supply jitters

April 16 (AFP) Oil prices streaked into new record territory for the second straight day Wednesday, boosted by a decline in US energy reserves and as the weakening dollar drew investments in commodities.

2) Dollar Falls to Record Against Euro as EU Inflation Quickens

April 16 (Bloomberg) -- The dollar fell to a record low against the euro as European inflation accelerated last month. The currency had its biggest decline versus the euro in three weeks, weakening to $1.5979 as U.S. housing starts dropped more than twice as much as forecast to a 17-year low. The Canadian and Australian dollars and the Norwegian krone increased after crude oil touched a record $115.07 a barrel.

3) Housing Starts Slide to Lowest Level in 17 Years (Update3)

April 16 (Bloomberg) Housing starts in the U.S. dropped more than twice as much as forecast in March to a 17-year low, signaling that declining construction will keep eroding economic growth this year.

4) Sallie Mae: Can Only Lend At Loss, Weighs Options

April 16 (CNN Money) SLM Corp. (SLM) swung to a first-quarter loss and warned it can't make profitable loans at this time, prompting the nation's largest student lender to assess its operation and call for a "system-wide liquidity solution."

5) Steep Loss at American Airlines Illustrates Industry’s Woes

The parent company of American Airlines, the AMR Corporation, posted a $328 million first-quarter loss as surging fuel prices sent the industry into a downturn.

6) Fed Beige Book Says Economy `Weakened' Since February (Update3)

April 16 (Bloomberg) -- The Federal Reserve said economic growth has slowed in nine of its 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending.

7) CPI Shows Inflation Is Still Chugging

The consumer price index figures for March weren't the runaway disaster many had feared, but that only shows how rough things have become, as the U.S. economy deals with the twin problems of inflation and a slowdown.

The Labor Department reported on Wednesday that the CPI, which measures the prices of a mix of consumer goods and services such as transportation, energy, food and medical care, inched higher in March after a flat reading in February.

8) Panic Time at the Fed

April 16 (Forbes) U.S. Treasury Secretary Henry Paulson's blundering is becoming more breathtaking with each passing week… Until the Fed dumps inflation targeting and the U.S. abandons its weak-dollar policy, inflation will rule the day. Retain (and add to) your gold hedges.

Well, after reviewing the presses, I’m completely baffled... If today was a “good news day”, I’d certainly hate to see what a bad one looks like.

Please feel free to post your thoughts on this issue




Anonymous said...

Doubleplusgood !!


ian m said...

you are right - much of the news is terrible. but what you are not addressing is that stocks discount things anywhere from 6-12 months out and stocks in general start going up BEFORE the news gets better. The big issue right now is whether stocks have sufficiently discounted all the bad news and will continue going up now in the face of bad news.

Out at the peak said...

Option expirations are coming. Stocks need to be lifted until Friday. If things are higher on Friday than right now, I'll take another short position on something and cover on Monday or Tuesday.

My latest short is LEH @ 44. I am not covering even if it blasts back up. I'd probably double my short position if it climbed to 47. In theory, they are worse shape than Bear Sterns.

I just finished my taxes, and I wrote my biggest check to the IRS ever because I had a lot of capital gains from shorting last year.

Anonymous said...

Why Randy, didn't you hear? We're in a Goldilocks economy! Just like 1999, it's a new era economy; the only way is up! (See sarcasm dripping)! Stupid sheeple...

Anonymous said...

Those that the Gods would destroy, they first make mad.

Gum Swamp

Aktaion said...

Good news, everyone! 'Doublespeak' is the official language of the land.

Reminds me of Professor Farnsworth in the cartoon series "Futurama", who always declares "Good news, everyone!" right before sending the crew off somewhere awful like the Nebula of Terror.

Anonymous said...

there are 2 thousand unemployed out of a 12 thousand membership in ONE of the construction trade unions in las vegas.these figures against a backdrop of huge casino/resort and condo building presently taking place in the city.during the next 18 months most of these contracts will be completed and we may well see a large exodus of families from this region and an effect on the economy that could be devastating for all concerned in 2009-10 and your cash,it may save your sanity.

Anonymous said...

When the market rallies on horrible news like this week, it seems that it has already discounted all the bad news and will rocket upwards with any kind of truly good news. Signs of downside exhaustion. Same thing happens with the gold market: when gold-negative news doesn't make gold go down any further, it tends to indicate a rally is on it's way. Conversely, when gold stops going up when all the news would seem to be gold positive, that usually indicates a coming correction. So based on that, any little bit of good news should send the general SM rocketing upwards.

Randy said...

I've been out of town on business and just now getting time to check back in. Appreciate everyone posting up your thoughts.

Looks like we had a similar event take place today.

Ian m -- You're right, but I expect the bad news to get worse over the coming 6-12 months.

Peak -- Great to hear from you. It's been a while. Hope all is well! Regarding taxes--you and me both..OUCH!

David, Couldn't agree more.

Anon 3:07: Thanks for the inside info. Yes, Cranes currently dot the skyline, but that expansion will soon end. Think of the domino effect of this construction downturn and the ensuing layoffs to follow: From homeownership, to retail to restaraunts, etc... It will be painful.

Anon 4:10: Same reply as Ian. You're probably right, but (I believe) it will be a suckers rally and when the bad news tidal wave picks up steam, the indexes will take out old lows and create new ones.

Again, thanks to everyone for posting up


Anonymous said...

US stocks are rising for the same reason that Zimbabwe stocks are rising. All that money has to go somewhere.