Tuesday, October 20, 2009

Buy the Rumor, Sell the fact

Investors appear to be selling on the news, even in the face of strongly positive earnings. While Apple and Google are two noteworthy exceptions, we saw this pattern play out today on Texas Instruments, Caterpillar, and Pfizer, to name a few key players that reported either last night or this morning.

It appears that earnings enthusiasm is being held in check. Another likely explanation is obviously that the market has had such a stellar (and prolonged) run that many investors are reluctant to chase stocks at the current levels. Perma-bulls counter this argument by saying that 'trillions of dollars' are still on the sidelines and that money managers are experiencing performance anxiety. More skeptical market observers counter by saying that the market has gotten way ahead of itself and point to the still not so rosy fundamentals (such as high unemployment and relatively low consumer confidence).

A rare, stronger performance of the US dollar also made it more difficult for equities and commodities to keep rising. Technology was today's best-performing sector, driven by last night's stellar earnings release from Apple.

Among today's economic data releases, it was reported that September (annualized) housing starts came in below expectations (590,000 units rather than the anticipated 610,000 units). As well, there was a surprising decline in the Producer Price Index for September; it declined 0.6% month-over-month, with core producer prices also surprisingly off by 0.1%.

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