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The week before Labor Day is usually characterized by low trading volume, often leading to wild intraday swings. Well, there was plenty of low volume on Tuesday and plenty of volatility too, in Treasuries and currencies, as well as stocks.

Despite another batch of upbeat economic data and strong earnings and/or guidance from

Toll Brothers



Engineered Support


, major stock proxies opened weak, stumbled sharply shortly after 10 a.m. EDT, then flatlined until about 1:30 p.m., when they bounced. The final 90 minutes of trading saw the recovery expand noticeably, bringing major averages into modestly positive territory at day's end.

After trading as low as 9233.98, the

Dow Jones Industrial Average

closed up 0.2% to 9340.45. The

S&P 500

rose 0.3% to 996.73 vs. its worst of 983.57, and the

Nasdaq Composite

gained 0.4% to 1770.64 after trading as low as 1737.20.

At under 1.2 billion shares on the

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Big Board

and 1.3 billion over the counter, volume was subpar, albeit up from Monday's slumber. Breadth favored advancers by 18 to 14 in Big Board trading, reversing earlier trends, and was essentially even in over-the-counter action.

Given the lackluster market internals, many observers will probably downplay the significance of the market's comeback.

Last Tuesday, Brad Ruderman, managing partner at Los Angeles-based Ruderman Capital Partners, criticized those who dismiss rallies that occur amid low volume, Tuesday being a prime example of a day that many will "pooh pooh," he said, expressing a contrary view.

"When will these people realize there are no style points in thisbusiness?" Ruderman said. "I'm here to preserve capital and provide high risk-adjusted returns. The short side got way too crowded, financials reversed, and


, profit city," for those long.

After trading as low as 855.64, the Philadelphia Stock Exchange/KBW Bank Index closed up 0.3% to 867.13. Among others, Ruderman's roughly $155 million fund is long

Countrywide Financial






Bank One



J.P. Morgan



The fund is up more than 30% year to date, before fees.

Zig and Zag

One factor in the stock market's midmorning weakness was the effect of some asset allocation trades out of equities and into Treasuries amid their early weakness. After falling as much as 20/32 early on, the price of the benchmark 10-year Treasury recovered to close up 12/32 to 98 6/32, its yield falling to 4.48%.

The intraday rebound in Treasury prices coincided with downward pressure on stocks. But as yields retreated from the intraday highs near 4.60%, that in turn helped facilitate the afternoon recovery in equities.

"Zigging when they zag, zagging when they zig," as one equity trader half-joked about Treasuries.

Freddie Mac's


announcement that its duration gap widened to one month in July from zero in June also contributed to the Treasury market's turnaround, according to fixed-income participants. The relatively minor change in the gap between Freddie's assets and liabilities suggested to some that mortgage-related selling is unlikely to further roil Treasuries, at least in the near term.

Somewhat counterintuitively, the Treasury market had little reaction to the Congressional Budget Office's projection that the federal

budget deficit will rise to $401 billion in fiscal 2003 and $480 billion in fiscal 2004. Over the next 10 fiscal years, the nonpartisan CBO forecast that the deficit will reach $1.4 trillion vs. previous estimates of $891 billion.

Treasuries fell early after the government reported that durable goods orders excluding transportation rose 1.7% vs. the expected 0.5%. Overall, durable goods rose 1%, in line with expectations, and June's orders were revised to 2.6% from 2.3%.

"New orders were up over the last two months in every major category except defense aircraft," noted John Silvia, chief economist at Wachovia. "The widespread nature of the gains suggests that economic growth is branching out into all areas of capital spending. This suggests another upward revision to second and third quarter GDP estimates."

Silvia forecasts "4%-plus" GDP growth in the third quarter.

In other economic news, the Conference Board's consumer confidence index rose to 81.3 in August vs. the consensus estimate of 79.6 and July's 77. However, the "current conditions" index fell to 61.6 from 63, its fourth consecutive monthly decline. Finally, July new-home sales were reported to have fallen by a slightly less than expected 2.9%, while June's sales were revised up to a seasonally adjusted annualized rate of 1.2 million units, a record.

Despite the strong economic news, stocks sold off sharply after the release of the consumer confidence and new-home sales data. The dollar followed suit; after trading as high as 99.49, the dollar index finished down 0.4% to 98.85. After trading below $1.08 for the first time since mid-April, the euro recovered to roughly unchanged at $1.0874 late Tuesday. The dollar dipped to 117.27 yen vs. 117.45 late Monday.

After trading as low as $360.30 early on, gold futures rose 1% to $366 per ounce.

Premature Requiem for a Heavyweight

In addition to low volume and intraday swings, rumor mongering is another common trait of late-summer, preholiday trading. On Tuesday, traders speculated about the health of

Federal Reserve

chairman Alan Greenspan, with some even suggesting he'd passed away.

A Fed spokesman declined to comment on the rumor. But Greenspan is scheduled to speak Friday at the Fed's annual confab in Jackson Hole, Wyo., and the spokesman noted there'd been "no change" to the schedule as of Tuesday afternoon.

Rumors about Greenspan's health spurred some discussion in's

Columnist Conversation. The consensus view was that Greenspan's vitality is very much connected to that of financial markets. The Treasury market's "misbehavior" aside, the Fed seems to be

getting what it wants this summer, as postulated here in June.

As was the case back then, I'm somewhat shocked by the level of faith investors are again placing in Greenspan and his cohorts as the past few years have clearly shown their fallibility. Furthermore, recent history suggests that investors' faith in the Fed is a good contrarian indicator, albeit one that's hard to scientifically measure.

Consider, it was only about 11 months ago that many people thought Greenspan & Co. were powerless, just as stocks were poised to embark upon a huge rally. Conversely, there was widespread faith that rate cuts would save stocks in 2001, a true sucker's bet in retrospect. Going further back, those who believed rates didn't matter anymore received a rude awakening after the Fed tightened in 1999-2000.

Currently, it seems as if Wall Street's faith in the Fed is at or near a 52-week high, although far from its all-time peak. Same as the major averages themselves, not coincidentally.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.