Can Markets Extend to Fifth Straight Day of Gains?

November 28, 2008 – The futures are indicating lower openings for the broader markets this morning after posting four consecutive sessions of gains. Since last Friday, the DJIA has gained 1,334.34, or 18%. So it shouldn’t be surprising to see traders setting up for some profit taking at the open, especially as the retail season comes into full effect with “Black Friday”. Expectations are muted for retail performance, and consumers are expected, according to a recent Gallop poll, to reign in their spending over the holiday by about 30%. In the financial sector, U.S. interbank rates are up to 2.22% this morning, indicating that the lending market is still extremely tight.

Oil prices are slightly lower this morning, down $0.68 at $53.76 as OPEC meets in a special meeting to discuss, amongst other things production levels amidst the recessing global economy. We think OPEC will be cutting production in the near term to try and buoy prices. And gold is up $1.80 to $813, apparently regaining some of its “safe haven” status of late. We remain long-term bullish on gold in anticipation of what we expect to be a much weaker environment for the dollar in 2009.

In international markets, the Royal Bank of Scotland Group (NYSE:RBS) said that the British government is taking a majority control interest, about 57.9%, in the bank, or about 20 billion pounds in shares, with 15 billion going into common shares and 5 billion going into preferred. Unemployment in the Euro Zone has hit 7.7% in October while inflation declined to 2.1% in November. France’s Sarkozy said today he is going to unveil a €19 billion ($24.5 billion) stimulus package next week. Iceland lifted some restrictions on foreign exchange transactions and has created some new ones regarding cross-border capital transactions, as it continues to react to the collapse of its banking system and devaluation of the krona. Sweden has now officially fallen into a recession, with GDP down 0.1% in the Q3, after declining by 0.1% in Q2. Singapore’s central bank forecasts further weakening of its economy. The government expects 2.5% growth this year and -1% to 2% growth next year. India’s GDP slowed to 7.6% in the Q3, down from 7.9% in the previous quarter and 9.3% in the same period last year.

On the corporate front,

·         Fujitsu Siemens is cutting 700 jobs in Germany;

In terms of what we expect in today’s session, we would be surprised to see stocks close in positive territory, although, we thought stocks were running out of steam heading into Tuesday’s session. Pundits continue to prognosticate as to whether we have found a bottom, and we would be inclined to say “all things being equal”, sure. But the problem is that in economics things are never equal. To be sure, the incoming Obama administration is giving us all reason to believe there is finally going to be level of competency to approaching the economy, and confidence goes a long way to stabilizing markets. But there is much heavy weather ahead, and expectations remain largely that there is still worse news ahead of us, before things get better.

So, against this backdrop, we just don’t see any catalysts for stocks to be able to extend their rally. We think on the high side, the DJIA may get up to 9,500 in the near term, but we are still not advocating accumulation anywhere above 8,500.

Fast Facts

·         The national debt is up to $10.68 trillion this morning