Stocks Have Worst Day Since June On 25th Anniversary of Black Monday, Has The October Rally Ended?
It’s not clear yet.
U.S. stocks fell the most since June as earnings from GE, Microsoft, McDonalds and Google yesterday failed to keep market momentum rising from earlier in the week. Earnings for large conglomerates have been lackluster this quarter and revenue numbers have been tame. Corporate profits haven’t been exceptionally disappointing but rates of growth have not been impressive and may be impacted by uncertainty about the fiscal cliff, the elections in November and the persistent low economic growth.
We believe fears about the fiscal cliff could already be having an impact on business decisions and are causing executives to make easy bets that can’t go wrong next year if politicians fail to act. The economy is currently growing at a staggering 1.3 percent and after 43 consecutive months of unemployment above 8 percent, consumers are being very careful with disposable income as gas prices rise.
The holiday season will still be a hit compared to last year but it’s hard to measure ‘what could have been’. We forecasted in June that the fears of a fiscal cliff would begin to have an impact on 3rd quarter 2012 earnings but a stronger holiday can put firms back in the black.
See June 25 - President Obama Must Address The Fiscal Cliff: The fiscal cliff should not be ignored and the President should consider viable options to avoid endangering an already weak economic recovery. Waiting until next year if he is reelected won’t help because businesses are already holding back. —-Now we know that GDP has been trending much weaker than the prior year.
We are still neutral on markets short term with a defensive posture but we have not changed our bullish longer term view. Small caps and financials didn’t keep the gains from recent weeks so the current drop in prices may not be a buying opportunity yet. Today was the 25th anniversary of Black Monday when the market dropped 22 percent in one day making it the worst trading session in history and investors may have had the itch to sell symbolically.
Follow through selling next week would put pressure on support levels but a bounce could be possible if the next presidential debate is another relative tie. The NASDAQ fell 67.25 points or 2.19 percent to 3,005.62 and the S&P 500 closed at 1433.19 falling 24.15 or 1.66 percent.
Where were you when the market crashed 25 years ago?