- Last week saw panicky trading that left stocks little changed from where they were.
- The damage from the previous week has left investors with bargains a-plenty.
- But will their Fear, Uncertainty and Doubt (FUD) over short-term trends stay their hand?
Last week delivered a shocking amount of action to U.S. markets, but there was actually little actual movement. The Dow starts Monday up 1.1% from its level of a week ago, the S&P 500 is up .91%, and the NASDAQ is up 2.6%. The damage of the previous week, then, is half-way toward repair, with the market’s trough on Tuesday evening of 10% having turned into a two-week loss of roughly 5%.
Oil Drives Stock Market Rebound
Oil’s fall, and that of China’s stock market, led the way down, and oil has led the way back up, a two-day rally of 6.3% on West Texas Intermediate (WTI) crude, to $45.22, and a 5.3% rise in Brent North Sea oil to $50.50. This put the total gain for WTI oil at 11% on the week, 10% for Brent, but to get there, WTI had to bounce off a six-year low of $38.24.
Leaks and sabotage in Nigeria got a lot of the blame for the run-up, but the announcement that oil field services giant Schlumberger (NYSE:SLB) will buy Cameron International (NYSE:CAM) , the oil pipe kings, for $14.8 billion, including debt, a 37% premium on Cameron’s previous price, also gave hope that the worst of the global oil crash may be over.
Despite this, there remains a lot of uncertainty about China, where most of the 5% gain last Friday came in the last half-hour of trading leading some analysts to predict that market still has another 15% to fall. U.S. traders may need an extra cognac to get to sleep Sunday.
FUD (Fear, Uncertainty and Doubt) Produces Paralysis
The FUD phrase dates from the 1980s, when Microsoft (NASDAQ:MSFT) used public relations to sew doubt among companies about switching to Apple (NASDAQ:AAPL) Macintosh computers while it readied what became Windows. Fear of loss, uncertainty about switching costs, and doubt about leaving the “mainstream” of computing caused paralysis among customers – enough so that when Microsoft finally had a windowing interface compatible with old MS-DOS data it took the market.
FUD, in short, produces paralysis among investors, but it’s also a fast-twitch trader’s friend, because traders are hungry for action, action in any direction, and that’s something the last two weeks have provided, on a global scale. But, as previously noted, it really hasn’t brought us that far from where we were, and those investors who sat tight may decide to come in Monday and, in a spirit of calm reflection, pick up some long-term bargains.
Bargains A-Plenty In Today's Stock Market
After all, Apple is still available for a Price/Earnings multiple of 13, which includes a cash hoard that would make Aladdin jealous. General Electric (NYSE:GE) s available for just 1.7 times its annual sales. Current valuations for WalMart (NYSE:WMT) represent less than six months of its sales. Kinder Morgan (NYSE:KMI), which owns pipelines and oil processing facilities, not the actual oil and gas, opens trading with a yield of 6%, an asset base of $83 billion against a market cap of $71.5 billion.
All these may look like bargains, to different types of investors, and most traders leaving work Friday said they would be on the hunt for solid dividend-paying stocks when they got back in today. But they’re only bargains if you see the economic situation stabilizing, if you don’t see an economic crash coming to your own market.
That’s what FUD does. It creates bargains. It stays the hand of investors who might otherwise buy. It creates opportunities for traders with a short-term time horizon, measured in weeks, or days, or seconds.
So What Happens In The Markets Today?
What happens now is that the merry go round goes round. By the time our cognac drinker wakes up to their morning coffee in the U.S., the verdict from China and Japan and India will be in, the trading day will be half-done in Europe (except in England where it's a bank holiday), and we’ll know whether Monday will be a calm day for reflectively taking stocks to hold them, or another panicky day of trading like the previous five have been.
With so many people appealing to panic, you know I’m going to bet on calm.
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