Can't Build a Rally Without a Foundation

The problem with the "year-end rally" scenario isn't that so many market participants are expecting it. Rather, the problem is that corporate news does not support an advance, especially from current valuation levels.

That truth was self-evident early Wednesday as stock proxies were waylaid by a much-wider-than-expected loss from Micron Technology (MU), lackluster results from FedEx (FDX), warnings by Activision and Blockbuster (BBI), and Bank of New York (BK) announcing it will set aside $390 million to cover losses from aircraft lease contracts with UAL (UAL). Also, Conseco (CNC) submitted the third-largest bankruptcy filing in U.S. history.

As of 2:18 p.m. EST, the Dow Jones Industrial Average was down 0.7% to 8475.72, although off its earlier low of 8407.72. Similarly, the S&P 500 was lower by 1% to 894.16 after having traded as low as 887.82. The Nasdaq Composite was down 1.9% to 1365.45 vs. its nadir of 1355.60.

Confirmation that Halliburton (HAL) will settle its asbestos claims coincided with a late-morning rebound for blue-chip proxies. But the bounce was short-lived, and Halliburton was only fractionally higher after being reopened for trading.

The Comp was relatively weak, largely because of weakness in semiconductor stocks in the wake of Micron's miss. The Philadelphia Stock Exchange Semiconductor Index was lately off 6.3%.

Meanwhile, the belligerent rhetoric from the White House was intensifying, heightening concerns about the onset of war with Iraq. The U.S. is expected to formally reply to Iraq's weapons declaration shortly, and President Bush is "concerned about omissions in the declaration," White House spokesman Ari Fleischer said Wednesday. Those comments caused a resumption of the "war premium" being priced into oil and gold prices, with the former lately up 1.2% to $30.45 and the latter up by 1.4% to $342.70.

That puts gold at its highest level since June 1997. Nevertheless, many traders continue to muse over whether the metal has peaked, at least in the near term.