So much for that ol' post-Labor Day rally. The
declined another 3.6% this week, and for the first time since late July, even the
had a weak week, declining 2.6%.
What went up? Those don't-get-no-respect energy stocks that remain underowned in most investor portfolios compared with the sector's actual market capitalization. These stocks have had a great run so far this year and look poised to go further if oil remains anywhere close to current levels. Given the prices already in the pipeline, the integrated oils and exploration and pipeline companies will have little problem meeting or exceeding any near-term earnings expectations. They have the mo.
Oil and Utilities Both Jump
Their good news was not, however, good for most stocks. Nor should it be. When you see the energy and utility sectors rallying, it is often a signal that the end of the most recent bull cycle is near.
Two market strategists who for my money -- and more importantly for their clients' money -- hear the market's mood music (Mahler's Fifth?) better than anyone are
and Nancy Lazar at
International Strategy & Investment
. Here is what they told clients on Monday:
"Strong evidence has unfolded that both the U.S. and the global economy have entered slowdown phases. In addition to economic indicators pointing to slowdowns, market actions are generally consistent with a slowdown outlook. For example, utility shares have surged. The
5000 has been unchanged for six months, i.e. the stock market has cooled off. The dollar has surged. The Australian $, which is a good cyclical indicator, has plunged. Lumber has plunged. Bonds have rallied. The yield curve has inverted. And gold has remained depressed."
Ed and Nancy went on to say, "From a fundamental viewpoint, a
economic slowdown is hardly surprising. Indeed, no slowdown
recession we can recall had
this early on any stronger arguments for it unfolding than those that exist today: Energy prices have soared. There have been 128 central bank tightenings. Tech shares around the world are still off roughly one-third. Stock markets around the world have cooled off. The U.S. has an inverted yield curve. U.S. consumer spending increases over the past three years have averaged a near-record rate of increase, which in the past has been followed by a pause. And Japan's economic outlook is particularly risky."
The charts this week bear out their slowdown/recession thesis.
on fears of slower-than-expected revenue growth caused by worsening non-U.S. dollar exchange rates.
One bright spot on Tuesday was
, which finally capitulated to the inevitable and agreed to be bought, in this case by
. Both stocks sold off by week's end, however.
But the more significant news of that day may well have been the collapse of
, which makes electronic components for makers of PCs, phones, and other stuff. SCI warned Wednesday that this quarter's profits and revenue would fall short. Short was what you should have been going into the bad news announcement.
SCI's crack sent a shiver down the backs of investors loaded up with highflying semiconductor stocks, who feared it was a sign of a more general slowdown.
traded up nicely in anticipation of godlike quarterly earnings and revenue numbers to be reported after the bell. They were good, and the company even announced a share split to further entice punters into their stock. Nonetheless, that night in after-market trading, the stock gave up most of the day's earlier gains.
Friday, Oracle simply lost its footing altogether. It fell 6 15/16 to close the week at 78 5/8. Why, when Thursday's numbers were good? Not because of any nasty analysts downgrading the distributive software giant. No fewer than six, count' em, six, Wall Street houses raised earnings estimates for the company. (So much for independent research! Does Oracle management simply write these reports itself and fax them out to the sell-side guys? How else can you explain these lemmings?)
This is not to say those Old Economy stocks did all that well this week. Have you seen
lately? On Thursday, the toothpaste and dish-detergent maker collapsed, down 17%, after an analyst warned that earnings were likely to be undercut by the weak euro and rising energy costs. It looks like a waterfall.
The whole market looked a bit like Colgate on Friday. The selloff had a wonderfully simple trader's logic. Economic slowdown? Earnings warnings? My portfolio has an average P/E of 100? P/E compression? Uncertainty is not good news? Take some money off the table.
Friday's volume was pretty good and the
, an index that measures market volatility (i.e. fear) spiked up a bit. There was a whiff of fear in the air. But the VIX is still nowhere near its past highs during scary times. I had to laugh when
Nasdaq reporter said after Friday's close that the decline this month in some of the big tech names was "terrible." Heck, they are only down 10% to 20%. Anyone who has seen tech stock cycles in the past knows that "terrible" is a lot more down than that.
Brett Fromson writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He invites you to send your feedback to