U.S. Stock Market - Early In A New Bear Trend

To begin the day this morning, U.S. stock investors ignored lower European share prices and focused instead on sharply higher Japanese stocks. The Bank of Japan will be doubling its monthly purchases of JGB’s (to $75 billion/month) and also expanding its purchases of real estate investment trusts. It could be argued that the Bank of Japan is 24 years late with its attempt to end deflationary forces there, but “better late than never”, I guess.

Here are today’s closing marks, with changes from Wednesday’s close:

                                                                                    Thursday’s Closing Prices                 

Dow Jones Industrial Average                        14,606.11        +55.76             +0.38%

S&P 500 Index                                                  1,559.98        +  6.29             +0.40%

NASDAQ Composite Index                               3,224.98        +  6.38             +0.20%

Russell 2000 Index                                               925.66        +  6.95             +0.76%

Dow Jones Transportation Average                  6,009.66        +  3.71             +0.06%

As I write this column (at 8:35 PM ET), the Nikkei 225 Index is up more than 4% to begin their day on top of a big gain of about 2% yesterday. Thursday evening U.S. stock futures are slightly lower despite big gains in Japan.

I normally try to avoid the tick-by-tick analysis and focus instead on the “bigger picture”, which to me is defined as attempting to forecast “the next 10%” swing. However, seeing the S&P 500 e-mini contract slightly negative right now despite a Herculean performance by the Nikkei (+4%) suggests to me that U.S. stock prices will move on their own tomorrow. Of course, this statement may not be all that earthshaking given the fact that the monthly U.S. employment report is due to be released tomorrow morning by the U.S. Labor Department.

Does tomorrow’s U.S. employment report really matter? If stock market bears like me are right, then a strong non-farm payrolls report will lead investors to react negatively to the increased probability of “unfriendly” rhetoric from Fed officials relating to the timing of the Fed’s exit strategy on QE3. If non-farm payrolls are weak, then investors will react negatively to the “obvious” deterioration in U.S. economic fundamentals which might lead to lower corporate earnings. Bear markets are all about "lose, lose" situations. Of course, if we’re still in a bull market (which I doubt), then appropriate rationalization will be applied to the latest employment numbers to support higher stock prices (i.e. "win, win"). 

In a side note, gold/silver mining stocks finally bounced today after two really nasty down days on Tuesday and Wednesday. The Philadelphia Gold/Silver Stock Index rose 2.65% today, with some silver stocks up more than 4%. What’s really incredible about this sector’s action today was that both Gold and Silver futures and related ETFs were down almost the entire day. I “get it” that the U.S. Dollar is strong relative to other major currencies (i.e. Yen & Euro). And yes, Gold is priced in Dollars here in the U.S., but does anyone have any doubt as to central bank intentions regarding monetary expansion immediately ahead and for the next several quarters at least? The QE path is clear at $85 billion/month here in the U.S. and $75 billion/month in Japan now. Will the European Central Bank be far behind with its own formal QE program? And how about the Bank of England? It’s a race to the bottom, and rhetoric suggesting otherwise is just uninformed, deceptive, or naïve. In my view, the only strong bet here is precious metals (and related mining stocks) as a store of value against ongoing debasement of global paper currencies.

Bottom Line: Despite today’s modest rebound in U.S. stock prices, the peak for this move has already been made (14,684 in the DJIA and 1,574 in the S&P 500 Index on April 2^nd). A major correction is now underway, and stock investors will have very few places to hide to avoid losses over the next 8 to 10 weeks. Cash is King !