“When the Fed said it would do all it takes to prevent a financial crisis, the market reaction was: ‘What’s to worry about? It’s all good’. That’s pretty much the way we feel.”
– Linda Duessel (subscripton required), Market Strategist, Federated Investors
The big stories of the day were the announcement by Deutsche Bank (DB) of $2.2 Billion Euro ($3 billion US) in writedowns on CLOs and CDOs for the 3rd quarter (Press Release) and the downgrade of many big semiconductor companies, including Intel and AMD, by Morgan Stanley.
Again, oddly Deutsche Bank (DB) and all the financials were strong on this announcement. Deutsche is up almost 2% today. The XLF is flat on a down day for the overall market.
Also of note is strong rallies in homebuilders and retailers, in addition to financials. These stocks have been on a tear recently and the reason isn’t hard to come by.
A lot of investors seem to believe that the Fed will save the day. These sectors have been badly beaten up this year and they are rallying ferociously as if many investors believe that the bottom is in in these sectors.
An interesting day:
Financials (XLF): -.14%
Homebuilders (XHB): +1.34%
Consumer Discretionary (XLY): +.46%
Consumer Staples (XLP): -.50%
Technology (XLK): -1.02%
Basic Materials (XLB): -1.08%
Industrials (XLI): -.82%
Energy (XLE): -.59%
An odd configuration I’d say.
UPDATE (Thu 10/4, 10:00am PST): The guys over at BeSpoke Investment put their finger on what was so odd about yesterday’s trading in a post called “The Best Were The Worst Today”.
The stocks that have performed best in the market spurt from the August 16th lows performed worst yesterday, while those that hadn’t done as well during this incredible run started to get some bids.
My interpretation is that investors took profits on stocks that have had phenomenal short term runs and put some money to work in names that have been weaker expecting that they’ll play catch up.
I think that last point is crucial. Even though markets were down, I think the action shows a lot of positive sentiment that the market is headed higher.