Yesterday the Dow Jones Industrial Average (DJIA, or "the Dow") was down all day below the magic 10,000 mark. But around 3:00 PM, an unexplained miracle occurred.
NEW YORK – The Dow Jones industrials plunged below 10,000 to their lowest level of the year Tuesday before a late-day rebound that erased most of the losses if not lingering worries about Europe's debt crisis.
The Dow dropped more than 250 points after the opening bell and stayed under 10,000 most of the day, then charged back to finish down only 22 when signals from Washington suggested that banks would not be forced to sell their lucrative derivatives units as part of financial reform. The Standard & Poor's 500 index even managed a slight gain.
But more turbulent days are likely...For now, traders are unswayed by upbeat U.S. economic news. They ignored a better-than-expected report Tuesday showing consumer confidence index rose for the third straight month.
"Market participants feel like they're walking on eggshells," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. "Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario."
If I didn't know better, I might conclude speculate that the Plunge Protection Team took extraordinary measures to make sure the Dow didn't finish the day below 10,000. However the miracle occurred—similar "miracles" seem to happen every other trading day—we do know one thing: we managed to fool ourselves for another 24 hours, and that's what counts, right?
Speaking of fooling ourselves, the Conference Board has released its latest confidence survey.
The Conference Board Consumer Confidence Index® increased in May, its third consecutive monthly gain. The Index now stands at 63.3 (1985=100), up from 57.7 in April. The Present Situation Index increased to 30.2 from 28.2. The Expectations Index improved to 85.3 from 77.4 last month...
Consumers’ assessment of current-day conditions continued to improve in May. Those saying conditions are "good" increased to 10.0 percent from 8.9 percent, while those saying business conditions are "bad" declined to 39.3 percent from 40.0 percent. Consumers’ appraisal of the labor market was also more positive. Those claiming jobs are "hard to get" decreased to 43.6 percent from 44.8 percent, while those saying jobs are "plentiful" was virtually unchanged at 4.6 percent...
The percentage of consumers expecting business conditions will improve over the next six months increased to 23.5 percent from 19.7 percent, while those expecting conditions will worsen declined to 11.5 percent from 12.4 percent. Consumers were also more confident about future job prospects. Those anticipating more jobs in the months ahead increased to 20.4 percent from 17.7 percent, while those anticipating fewer jobs declined to 17.7 percent from 19.9 percent.
It was the Beginning of the End when American citizens were routinely referred to as consumers, but never mind. The alert reader will note that those saying things were good increased to a whopping 10%, while those saying things sucked declined 0.7% to 39.3%. But the actual Self-Deception Confidence Index rose 5.6% to 63.3%. Thus it can said that although things suck right now, optimism about the future 6 months from now is soaring.
Confidence, the stock markets, expectations—they're all connected.
Economic Outlook Deteriorating After Steady April, Early May
Fifty-seven percent of consumers told Gallup economic conditions are "getting worse" in the country as a whole during the past week. This is up three points from the prior week, and the highest such percentage since the week ending March 28...
... putting too much faith in the Conference Board report [cited above] ignores how consumers have reacted even more recently to the recent financial turmoil in Europe and the stock market slump. While international financial events may seem too far away to cause many Americans a great deal of concern, plunging U.S. financial markets are an effective transmission system — particularly when they are transmitting fear. Gallup's daily monitoring shows that consumers are not ignoring what has been happening on Wall Street; current consumer confidence measures that report their findings once a month can miss such fluctuations, and suddenly be out of date.
[My note: You can also view daily polling on US economic conditions.]
You might even think of it as a Confidence Game in so far as the Dow and Consumer Confidence are strongly correlated. It is easy to have Great Expectations about the distant future because it hasn't happened yet, but when it comes to day-to-day realities, and where things are heading as of right now, fooling yourself is a little harder to do. With elections coming up, the stock market tanking, and 57% of the people saying the economy is getting worse, Larry Summers wants a new stimulus—
The Obama administration made a strong plea to Congress on Monday to grit its teeth and pass a new set of spending measures — dubbed the “second stimulus” by some economists — in order to help dig the economy “out of a deep valley”.
The call for action, which was made by Lawrence Summers, Barack Obama’s senior economic adviser, who urged Congress to pass up to $200 billion in spending measures, came at the same time as Mr Obama asked Capitol Hill to grant him powers to cut “unnecessary spending”.
But why do we need a second stimulus if the future looks so bright? How can the future look so bright if we're stranded in Death Valley? As I was drinking my morning coffee, National Public Radio announced that the stock market was soaring on news that durable goods orders (mostly for commercial aircraft) were higher than expected. Thus we're feeling pretty good this morning—we may be able to fool ourselves for another day.
As Steven Chu loves to say...
"...When you come to a fork in the road, take it..."
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Posted by: Confused Person | 05/27/2010 at 04:17 AM