"It's the push-pull between lots of cash looking to go into the market and concern about how stretched this move is. That's the schizophrenia you're seeing in the market." At least that's how Jon Merriman, CEO of Merriman Curhan Ford describes it.
Ned Davis Research said in a recent note that "They see more measured gains ahead, with minimal risk of a bear market. Seasonal headwinds may mute advances, but bullishness isn't overdone." John Schneider, PM of the Touchstone JSAM fund which is up 92.2% for the year thinks "The credit market is fully recovered but the stock market has about 20% more to go. Stocks are still cheap."
If we add to all of that to Gluskin Sheff's economist and strategist, David Rosenberg's thoughts expounded upon everyday in his "Breakfast With Dave" piece that there is simply no way the stock indices belong at these levels we have pretty much a the full gamut of opinion.
Another opinion, and one that might count just a little more than the four just mentioned is that of Ben Bernanke who said recently, "My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period." As many a market veteran knows it's not nice to fool Mother Nature or "fight the Fed".
The mix in opinion is even coming from CEO's as they report 3Q09 earnings. Ken Chennault, CEO of American Express Co. (AXP) said, "While there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in card member spending are encouraging and there are signs that the recession may be approaching and end."
Burlington Northern Santa Fe (BNI), credited as the reason behind Friday's selloff, said as part of its earnings conference call that "coal shipments may ‘moderate' and that shipments of ‘consumer products should be challenged by weak demand.'" Additionally the company forecast current quarter earnings of between $1.10 to $1.20 per share which was lower than the $1.31 average of 18 analysts compiled by Bloomberg.
The Investment Grade CDX index closed precisely at 100bps on Friday below Wednesday's 102bps and above Thursday's 99bps levels. The TED spread has widened some since its 9/10 low of 16.28bps closing Friday at 23.12bps after peaking at 23.86bps on Thursday. 3-month $ LIBOR was set at 28.19bps on Friday and has had a 28 handle since early September.
AXP had an 8.5% range on Friday trading above Thursday's high and settling below Thursday's low. Having said that the stock is still within the range established on the low side by the open on 10/8 and the high on 10/22. For the shellacking the stock took the CDS market actually priced AXP's risk of default lower on Friday than it did on Thursday moving the CDS from 120bps to 114bps.
BNI on the other hand has seen its CDS levels rising since a near term low was established on 9/16 at 35bps. The stock initially fell from $84.89 (9/14) to $78.20 (10/1) but then went on a tear gaining $8.30 in just 8 trading days to close at $86.50 on 10/14. The CDS moved more sideways than lower during this period but made a new high for the move on 10/16 closing at 50bps. By Friday that high had been eclipsed as the risk of default was priced at 51bps. The stock was with $0.92 cents of its 10/1 low by Friday's close.
If anything, the market's reaction to the BNI conference call should send a loud and clear message to Ben & Co. that things are still shaky which could go a long way in extending that "extended period".
As they say, "Don't fight the Fed".
