Update #4/ Week of January 18, 2010

Good Morning Everyone and Happy Wet Thursday! Yesterday we joked around about Wall Street being the old man snoring during the rain storm and bumping his head. The Dow dropped yesterday over 200 points right out of the gate, but was able to slowly “get back up” through out the day and ended the session with only a 122 point loss. This morning he appears to be a little disoriented again as he fell out of bed to another 200 point drop and is having quite a struggle getting back on his feet. As of this writing, the Dow is off 212 points, and it appears the long awaited correction is finally happening.

When the market begins to fall like this, we’ve witnessed in recent years, there typically follows a ripple effect as the initial pebble hits the water then there are rings of reactions to the initial drop. The dynamic that’s true of the market most recently is the veritable plethora of day traders sitting at home with the ability to buy and sell stocks from their home computer. In the old days, an individual would have to call their stock broker who might calm them down a bit before selling. Today, when my grandpa for example, gets out of bed and sees another day of triple digit losses on the Dow, he’s likely to run to the computer and sell what he has. This causes continued fall in the stock market and others doing the same. We’ll see how this correction plays out, but that seemed to be the case in late 2008 and early 2009

Selling pressure, especially in the financial sector, is prevalent after President Obama indicated during a speech that there are proposals on the table to limit the size of banks. This is in an effort to not allow banks to get “too big to fail” and “hold the American people hostage” in forcing the average citizens to bail them out if they get in trouble.

Further selling pressure in the stock market could be a reaction to the Initial Jobless Claims report for the week ending Jan 16. It seems 482,000 initial jobless claims were filed last week. That is not a surprise as we talked about this being the case once the holiday help was let go. Analysts, however, were looking for a number closer to 440K, after the week previous came in at 446K. Unemployment is that 800 pound gorilla STILL standing in the corner and hasn’t left the room.

Otherwise, Goldman Sachs’ positive earnings report is having little positive effect on the market. The Philly Fed Index came in much lower, at 15.2, than expected at 18.0 – way down from the 22.5 registered in December. However, LEI increased 1.1%, compared to the 1.0% registered last month. The leading economic indicators and consumer confidence all point toward a bright future someday, but for now, we appear to be stuck in the mud.

I will be in the office all day today. If the rain stops this afternoon, I may get out and make a few calls, but if you need me . . . call me here or email me. I hope you have a terrific Thursday!

Warmly,