The equity market has found some critical support after what can only be described as a manic May. In fact, in 16 of the past 23 sessions (or 70% of the time), we have seen the Dow moved 100 points or more (in fact, the Dow has posted an amazing 16 straight sessions of 200+ point intra-day swings). So whether one is a bull or a bear there is one fact that is not disputable, which is the degree of the volatility we are dealing with. As an aside, these wild swings are characteristic of a bear market, not the hallmark of a bull market, and to make the point clear, the last time we saw this much volatility (16 triple digit swings in 23 days) was back in the depths of despair in that post-bazooka period in November-December 2008.
We should add here that despite the hefty gains posted yesterday, volume fell across the board. In other words, we have a bounce going as the gaps get filled but there is little conviction that this thing has any legs. As the front page of the Investors Business Daily attests, there is now a huge public backlash against more fiscal stimulus, and yet, it has been this unprecedented incursion by the government into the economy and the capital markets that ignited the green shoots in the data and all the investor enthusiasm in the equity market. Amazingly, the current stimulus bill making its way through Congress is now in the process of being cut back — the ‘blue dog’ Democrats are back (ostensibly much to Mr. Summers’ and Ms. Romer’s chagrin).
Let’s not take our eye off the oil spill ball, either (now being dubbed “Obama’s v Katrina”) — the decision to suspend all offshore oil and gas drilling will surely exert an economic impact that is downward in nature. We can hear it now —“the problems in Mississippi and Louisiana shall remain contained” (as they were in Greece … right).
In today’s issue of Breakfast with Dave
• While you were sleeping; global equity markets are broadly firm; government bond yields have stopped surging; euro remains weak; commodities and commodity currencies are bouncing back
• A golden letter: Every now and again, I like to reprint pithy thoughts from our readership
• May day! The equity market has found some critical support after what can only be described as a manic May
• Surprising downside GDP revision: U.S. real GDP for Q1 was clipped to a 3.0% annual rate versus 3.2% in the advance reading
• U.S. labour market sputtering? The improvement in the second half of last year that led the turnaround in payrolls this year has completely stalled out
• U.S. CPI in pictures: Who has pricing power and who does not
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