Bulls were looking for a bounce following Thursday’s big draw down, and that is exactly what we saw to close out the week on a positive note. Friday was a big relief for the bulls, but it was not quite enough of a lift to erase what was a rough week for equities. The box score for the week was not all that bad, though, as we saw the Dow down 1.0%, the Nasdaq off by 1.5% and the S&P 1.4% lower. Those weekly declines are fairly mild, but it was the suddenness and apparent lack of catalysts that left most bulls wondering why September felt like a September. We had been on a great run, and we even had recently posted all-time highs for the Dow and the S&P 500. So what happened?
It was a strange week, and there were a couple of extremely high-profile departures that left investors scratching their heads. Attorney General Eric Holder announced his resignation, and so did bond giant PIMCO’s Bill Gross, who is headed to Janus Capital (JNS) in Denver. The reasons for each of these departures were somewhat vague, but seeing big names like these announce (or be announced) on a Friday that they are leaving high level positions is always cause for concern. Investors shrugged off the news and stocks headed higher Friday, so the news of these “changes” sort of took a back seat for the day.
Even stranger was the rally that ensued throughout the session, which left stocks near their highs of the day. Bulls were not complaining at all, though, mainly because it is never much fun to head into a late-September weekend with a Friday meltdown in the stock market. We should get more in depth analysis in the days ahead as to why Holder and Gross flew the coop, but neither story rattled markets at all. The focus instead was on the 4.6% GDP number, and the rise in consumer confidence to 84.6 versus the expected 84.3. Neither number seemed worthy enough to send stocks into that beautiful Friday rally, but again, the bullish camp was not complaining.
Bill Gross’s announcement is worth noting mainly because in a sense, he IS the bond market. PIMCO and Gross manage $2 trillion dollars, so you have to wonder what might happen if just a few institutions, hedge funds or retirement plans decide to “scale back” their PIMCO holdings just a little bit. Does this portend massive bond sales coming soon to a theater near us all? Who knows? We do know that the Federal Reserve is planning to stop its bond purchases in October, so it raises the question of who will there be to actually BUY bonds in October. Could Gross’s announcement coincide with the “end” of the multi-decade bull market in bonds? Stay tuned, as this “bond drama” could easily be turned into an HBO made-for-TV movie.
Stocks are still strong, though, so what worry would investors have with troubles in the bond market? Well, the post-Lehman world that followed October of 2008 is not the same world we were in prior to the autumn of 2008. Just six years ago we saw Bear Stearns blow up, Lehman Brothers vanish, and Merrill Lynch merged into Bank of America over a long weekend. We saw the Fed launch the most aggressive bailout effort ever seen in the history of financial markets, and here we are six years later with an economy that has recovered and everything worked out just great, right? Hmm…
The Gorilla does not mean to sound negative right now at all, but it must be because of the fact that September acted like September this week. October is right around the corner, so let’s hope October does not act like an October. Earnings season kicks off, so maybe that will provide the boost of optimism that the bulls would like to see carry stocks back to their all-time highs we just saw in September. The Federal Reserve remains ready, willing and able to help if we were to see any bumps along the way, so that is another plus as we head into the final quarter of the year.
That said, we wish each and all a restful and relaxing weekend. Friday’s rally allowed the bulls to head into the weekend with a big sigh of relief, so maybe this past week was just a momentary blip that reminded us that stocks do not always go up. Have a great weekend, and we will be back in action on Monday. The Gorilla is working on Halloween costume ideas, and it is amazing that October is already right around the corner. Again, have a wonderful weekend!
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