There was nothing unusual about Thursday’s stock market slump. That was the problem.
The Dow Jones industrial average closed down nearly 143 points, at 12,284.30, one of six triple-digit moves by the popular index just this month. Trading volume has been thin.
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Stocks have entered one of those dry spells that leave bulls and bears alike bemused. The latest quarterly corporate financial reporting season is over. The Federal Reserve’s interest rate committee isn’t scheduled to meet until March 18.
For the next few days, investors must navigate a Bermuda Triangle: no Fed, no earnings reports and no major economic releases.
February tends to be an uninspiring month on Wall Street in election years when, as now, the incumbent party is expected to lose the White House, according to the Stock Trader’s Almanac. Things don’t improve until after the November election.
In another vein, the winter doldrums have become just barely tolerable in much of the country. For active investors looking for something to do, the most urgent matter for many was their 2007 tax return.
Still, optimists have been attempting a comeback in recent weeks. A survey of investment bloggers by Birinyi Associates shows sentiment almost evenly distributed among “neutral,” “bearish” and “bullish,” with a slight bias toward “bullish.” At the end of January, bears held a commanding lead in the survey.
But a becalmed stock market can be treacherous. Don’t call the stock market resilient until investors get through the next few weeks.
A year ago, during a similar period of vulnerability, a sudden slide in share prices at the Shanghai Stock Exchange sent U.S. stocks tumbling.
The Dow dropped 416 points on Feb. 27, 2007, reversing an upbeat start to the year. Shanghai stocks rebounded almost immediately. The Dow recovered in the weeks ahead, marching to record highs last summer.
This time, stocks appear to have stabilized after one of the worst Januarys on record. Nonetheless, a number of technical analysts speculate that the stock market must revisit, or “test,” its Jan. 22 low, 11,971 on the Dow, before a significant rally can take hold.
In the market’s current funk, it seems easier to predict a retest of the January low than a rebound into positive territory for the year to date.
For example, late Thursday, Meredith Whitney of Oppenheimer, a bearish oracle among bank stock analysts, told CNBC she expects banking giant Citigroup will be forced to cut its dividend for a second time this year.
At the end of October, Whitney first predicted a Citigroup dividend cut. The stock market promptly sank. Citigroup slashed its dividend by 41 percent on Jan. 15, but Whitney says the worst isn’t over. Dividend cuts by blue-chip companies resonate widely among nervous investors.
Whitney and other bank analysts are convinced Citigroup and other major banks have boosted their capital reserves against yet-to-come losses from lax and abusive lending.
In the next few weeks, obtaining auditor signatures on 2007 annual reports to the Securities and Exchange Commission might require banks to bite the bullet for the second or third time in recent months.
Separately, Citigroup on Thursday issued a “sell” recommendation on department store retailer Target. It is the only “sell” signal among 23 analysts who follow the stock, according to Bloomberg. Target had bucked the market’s January sell-off, and as of Thursday was up nearly 3 percent for the year.
It’s apparent that consumers are closing their wallets. Even gasoline sales have declined. It’s not clear how this year’s early Easter will affect the normally upbeat late-winter shopping period.
Another trip switch for investor sentiment is the price of gold. In futures trading, gold rose $11.50 an ounce, to $946.10, after moving above $950.
The prospect of gold hitting $1,000 has become an obsession, or at least a water-cooler conversation topic, for many investors, whether or not they intend to buy gold at current prices. Like oil at $100 a barrel, gold at $1,000 an ounce reflects investor anxiety that is incompatible with a stock market rally.
If you practice the art of contrary investing, your time has arrived. The stars are aligned for a sluggish stock market, even if daily volatility subsides.
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