This is getting familiar. The market, already slouching toward a dreary weekend, gets slammed on Friday giving investors a sour mouth.
This Friday's special came from a familiar place. Concerns about more slowing in the computer services industry prompted
to issue a negative note focusing on
, a stock already under pressure, late in the day. While there was no downgrade, the note accelerated the selling in the major indices, driving the major averages to one of their worst full-week performances.
Like driving in circles, it all seemed similar. Seven days ago, the market tenor for this past week was predetermined by
late announcement that business wasn't looking too good.
Cisco delivered a nifty 400-point loss in the
Dow Jones Industrial Average Monday and helped drive the market lower throughout the week. In the inverse of the bull market days, when big rallies would follow with a "pause that refreshes," this week brought Tuesday and Thursday, twin pauses that worried.
For the week, the Dow lost 7.7%. The
S&P 500 ended 6.7% lower, and the
Nasdaq Composite Index was down 7.8%.
Investors continue to wait, watching companies warn of eroding profit margins and a cloudy future. PC maker
warned that it would miss first-quarter earnings projections, and
, while it didn't miss, said the next couple of quarters
don't look too snazzy.
"The aggressive money dominates the activity, and everything else follows the path of least resistance," said Tony Dwyer, chief market strategist at
. "That's why you can't muster sustainable rallies. When you take away aggressive money, the nonaggressive money wants to get out at anywhere but the low, which caps the upside."
Perhaps the most striking -- and potentially worrisome -- aspect of the current environment is the talking points delivered by various market strategists placidly assuming that a bottom in the market will be formed soon. Or the growing hope that this will be like 1998, a brief lull that presaged roaring gains in stocks, especially in technology. Wednesday provided all kinds of fodder for that kind of chatter as the Dow Jones futures were down more than 300 points at one point in anticipation of a sick-looking open, and both
S&P 500 futures and
Nasdaq 100 futures
were limit down, which means they couldn't go down any further.
There were a number of different theories why Wednesday was such a poor session, but consensus centered around massive selling by either hedge funds or Japanese institutions that had significant positions in European securities. The market bounced back from those harrowing futures levels Wednesday morning, lending credence to the theory that it was an isolated event, but succumbed later in the day amid more worries about overall global deterioration.
Others, such as
, pointed out that the recent worry over the economic crisis in Japan and destabilization of their financial system could
result in an all-out panic, prompting massive flight-to-quality buying of fixed income, dollar-denominated assets, just as it did in 1998.
The 1998 scenario relies heavily on the
Fed repeating its bravura performance of that year. At that time, the Fed's decision to shore up liquidity had an almost immediate impact. And investors sobered themselves up quickly, realizing that
GDP wasn't faltering and people were still spending like crazy.
The issue now, however, is one of causation. Yes, it's true that Japanese problems and rapidly dwindling demand in Europe may cut into the United States' economy. But Japan was already in trouble this year, as it has been for more than a decade. And unlike in 1998, when some worried that the U.S. economy might be engulfed by a destabilizing financial crisis, this time the U.S. economy is showing signs of real wear, especially when it comes to earnings forecasts.
Which means the 1998 comparisons may not be as straightforward as optimists would hope. The Fed's efforts work gradually to spur borrowing and investment; the goosing of sentiment that Fed actions usually provide is short-lived, or else January's rally would have found some legs.
That doesn't mean the Fed-as-savior notion has been completely eliminated, however. The market's response to economic data betrays that. In a perverse sort of thinking, right now good is bad where economic data is concerned. The stock market dropped sharply last Friday when the February unemployment report turned out stronger than expected.
The market reversed course with a bounce Tuesday following the release of a somewhat soft retail sales report, and noticeably declined this morning following the 10 a.m. release of the
University of Michigan's Consumer Sentiment Index
which turned out better than expected. Why? Because the better the data, the less chance of a big-time move from
Alan Greenspan & Co., which completely ignores the near certainty that the Federal Reserve is bound to cut rates by at least 50
basis points this Tuesday. The majority of economists still believe the Fed will cut just 50 basis points, and not 75.
As the theory goes, stronger data would inhibit the Fed from cutting interest rates more than 50 basis points, but that ignores the fact that a quarter point here or there doesn't matter in the short term, and that in reality, Greenspan wants the economy stronger rather than weaker. Much as the market might think it wants a recession to "get it over with," or in Travis Bickle's words, to "wash all the scum off the Street," there's no guarantee that any such event will happen as quickly or as orderly as anyone wants.