The pros all agreed that the days of the market shrugging off bad news are over, and the bear-market rally probably is, as well. There's much more bad news to be digested, and stock prices have risen too far too fast. Fundamentals continue to deteriorate; the seeming good news from the banks is really just the result of all the government money that's been getting pumped into them. There's been no significant improvement in the availability of credit, and until that changes, no one will be ready to take on any risk.
The 'Tough Slog' Begins
Newedge's George Dowd said this is where the "tough slog" begins, with no pullback yet after six weeks of gains; most good news is now priced in. He expects the S&P to drop to between 700 and 750, with a lot of trouble still on the horizon. Existing-home sales and new-home sales are due during the week ahead; continuing claims for jobless benefits are above six million, a "ridiculously high" level. Improvement in the basics is less impressive when you consider how low they fell.
Time to Sell the News — and Watch TARP
Jack Bouroudjian of Capital Market Technologies said it's time to sell the news, with good numbers from the banks (we're giving these banks money; we expect them to make cheap money).
Even a company as big and solid as Caterpillar can't get capital cheaply, and until that situation changes, the appetite for risk will not come back. Lots of earnings are coming this week — but he's especially interested in the latest revision in the TARP terms coming out of Washington.
No Recovery for Two More Quarters
Options City's Liane Feldstein noted that last week ended in a horizontal trading pattern, despite good results from the banks, so she did not expect Bank of America's positive earnings to inspire an upward market move Monday morning. The market has gone up too quickly, and retracement is likely now. There will not be any serious recovery for another two quarters.
Don't Buy Financials Until Fundamentals Turn
Kevin Caron of Stifel Nicolaus believes there's still more downside in the economy, so he's not ready to put any money into financials. The last upswing, he said, was a bounce off severely oversold levels; now prices are at the top of the trading range, so he's ready to take some profits. Unemployment continues to rise, personal income continues to fall and there's still no demand for credit. What he needs to see is a turn in economic fundamentals.
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CNBC Slideshows:
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CNBC's Companies in the News:
AIG
Oracle
Citigroup
GM
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