The tests continue. Weakness was anticipated, but for most of the session, it appeared as if only minor damage would be inflicted upon the market. But that gave way to the usual gyrations in the afternoon, and major averages all lost substantial ground, with the Dow’s 2.5% decline the most optimistic result of the bunch. Retail stocks derived strength early on as oil declined, despite poor news on November sales, but buying interest proved fleeting as those stocks ended the day lower as well. Oil stocks and semiconductors led this parade into the wall as the market ran into resistance when the S&P 500 hit 875. “We had a good run in the longs off that low, and now we’re at technical levels that since this summer have indicated you’re near a short-term top,” says Tom Alexander, president of Alexander Trading. That said, there were pockets of strength, such as the homebuilders, which managed to hold together well enough for a gain on the session even in the face of more poor news. The builders have been buffeted lately by the expectation of outright Fed purchases of mortgages or government-determined rates on new mortgages, which should help bolster the mortgage market, if only for a time. The lengthy plea by the nation’s automakers for a bailout did not fare well with investors, as General Motors fell 16% and Ford declined by 6.7%.
The jobs report is due out tomorrow, and the litany of announced layoffs today won’t have any bearing on it, but it can’t have helped sentiment. Not when AT&T, telephone giant, announced plans to jettison 12,000, or 4% of its workforce, andDupont said it will lay off 2,500 full-time workers. They weren’t alone. Viacom,State Street, Adobe, Credit Suisse, GE’s NBC Universal division, and Gannett all announced plans to reduce staffing, and while the weekly figures on jobless claims were better than the previous week, the interruption due to Thanksgiving might have played a part. “They may wait a few days or until after Christmas to actually officially lay people off,” says Dirk van Dijk, director of research at Zacks Investment Group. “There’s a little bit of a distortion from Thanksgiving week, but we’re still expecting tomorrow’s employment report to be downright ugly ugly ugly.” The expectation is for a loss of 350,000 in nonfarm payrolls, and for the unemployment rate to rise to 6.8% from 6.5% in October. The late-day selloff might convince enough people that the expectations for something worse have been considered, but tomorrow’s release will tell.
There’s already been plenty of gawking at the slow-motion train wreck that is the automakers, but plenty of other bad news continues to surprise investors. Merck & Co., which has been a relatively steady member of the Dow industrials in 2008 (mostly by default), said it expects 2009 profits to fall far short of Wall Street’s outlook due to sluggish sales and economic jitters around the globe. The company is also getting hit hard by an unfavorable exchange rate. The dollar’s strength is undermining its sales abroad, and the same will hit other drugmakers, which are also at risk for slowing sales. The transformation of what used to be a favorite defensive play into a growth story has now become problematic, as investors look to drugmakers, once again, as a reassuring staple in a tough market, but the pharmaceutical companies have not delivered. With thin pipelines and a constant threat of generic competition, along with slack demand, these stocks have been middling performers, but none as disappointing as Merck, which is down 57% on the year. Some are looking for good news out of the company’s analyst meeting next Tuesday, but Credit Suisse analysts suggest tempering one’s enthusiasm, saying that “we do not expect any major surprises at that meeting, however, and think investors will need to show patience before they see significant recovery of MRK’s shares.”
Wall Street is littered with the corpses of those who tried to time the markets and failed miserably, but this environment, in which a fickle market gives and takes frequently, is a heaven for those nimble enough to time markets. Not that anyone should attempt such a thing — a good lot of professional managers would find themselves quickly out of their depth if they attempted to game the vagaries of a market that moves, on average, about 4% in a day. But the recent rallies and selloffs suggest that those with a dexterous touch can thrive when others fail. A manager that jumped out of the market at the end of September would have limited his losses, and the S&P rewarded investors with a quick touch with a 19% rally in a five-day span that ended just after Thanksgiving. “If you come in too early you get clobbered, but if you jump on too late, you really miss out,” says Craig Callahan, president of Icon Advisors in Denver.