A remarkable thing has been going on in the midst of so much bad financial news of late.
Hope.
Somehow the collapse of one of the five largest investment banks, Bear Stearns, has been seen as a market bottom by many so called experts and the market itself apparently. Since the announcement of the Fed backed JP Morgan purchase of BS last week—which was amended yesterday— equity markets have experienced an impressive rally, nearly 800 points in the cash Dow since the lows of Monday March 17.
Why? Is it positive economic news? Not according to today’s numbers. The Conference Board announced today a 12 point drop in consumer confidence to 64.5 in March. The second consecutive double digit decline, keeping the index at a five-year low.
Lynn Franco, Director of The Conference Board Consumer Research Center said in a release, “The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers’ outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate.”
In addition to consumer confidence, the S&P Case-Shiller Home Price Index showed continued weakness in the housing sector. Both its 10-city and 20-city composite index are showing annual declines of greater than 10%. Of the 20 reporting regions in the index, 16 have reported record low annual declines.
Perhaps then it is tangible evidence that the majority of losses related to the breakdown of the subprime mortgage market, begun last summer, have been reported? Not according to a report released yesterday by Goldman Sachs. Bloomberg reported that a Goldman Sachs report suggested that total losses to Wall Street banks, brokerages and hedge funds would climb to $460 billion, roughly four times what has been reported to date.
It is hard to say what is causing the optimism but the market clearly swallowed a huge dose of bad news today without blinking an eye. Perhaps it is just a realization that all this money the Fed is pumping into the system needs to go somewhere.
Tags: Bear Stearns, Consumer Confidence, S&P Case-Shiller Index, subprime
