Entry for June 03, 2008

After a two hit blow the US equity markets has dropped 1.06% on the DOW and 1.05% on the S&P. Leading this trend is mostly attributed to the weak economic data coming from the ISM, with is 4 monthly decline and construction spending has dipped for the month of April. This trend of bad news and bad economic data still suggest the bearish environment investors are facing. With bearish sentiment still loaming, more bad news will only hurt the financial markets further. However, I believe that economy will improve much before anyone believes quite possibly towards the end of the last quarter 08 or into first quarter 09. There is not going to be an amazingly strong recovery but markets will have stabilized. With the revisions of GDP and some solidifying of labor markets, I believe it’s possible to have better revisions, and this past news for April is not indicative of the present environment. Though, I do believe to see equity indexes to remain within a range for the rest of the year, on the S&P500 between the range of 1375 and 1450 a support line may form for the S&P500 to reach levels back around 1500 into the end of first quarter or into the second quarter 09. However, the only thing that can hamper this is another crisis or unseen affects from previous crisis. Overall, credit conditions have improved in the US, though tight lending will remain for awhile due crisis psychological affects. Other risks are that the full credit crisis has not unraveled such as more developed Asian economies have possibly yet to see the full effects. Furthermore, the financial sector may add to some instability to the labor markets, though the worst of layoffs may have already past. Though some see it as worrying as Ken Thompson, Wachovia’s CEO and Washington Mutual’s Kerry Killinger CEO has been replaced. Though, this is more of a positive sign for Wachovia in my opinion, as Wachovia management has been poor and is in need of better managers. By the time the economy is in a bull market, the financial sector landscape will probably completely different between collapses and M&A between banks and PE companies.

Along with these possible stronger fundamentals, I see the dollar rallying to higher levels from a fundamental perspective, though I have yet to double check the technicals.