Several pieces of news are weighing on the markets midday. The bad news is that volume would normally be among the lightest of the year this week. So, there are few buyers around (bids are scarce), and thus a modest increase in selling pressure--as we have seen this morning--can result in very rapid drop in prices.
However, all is not gloom and doom. The key is to look at the data in the right way. Here's the news and my comments.
1) AutoNation CEO Mike Jackson said the economy was in danger of slipping into recession unless the Fed moves to aggressively cut interest rates--he said the U.S. economy was at a "tipping point."
Comment: the markets believes the Fed is going to cut rates. The Fed minutes today will be more important than usual. They are from the August 7th meeting--this is well after the subprime and credit issues hit, so markets will be looking for comments about danger of a slowing economy. Remember, that will be the rationale for lowering rates.
2) Consumer confidence drops in August, giving back all of the jump seen in July.
Comment: consumer confidence is not a particularly good indicator of anything--it's consumer spending that matters. If spending slows down dramatically, that will be another reason for the Fed to act.
3) Q2 home prices decline 3.2% from year earlier.
Comment: this is certainly not good news, however as economist Bob Brusca notes, the Case-Shiller Composite Index is up 45% over 4 years (25% if only existing homes are considered). How many people actually bought a year ago and are selling today? Not many.
4) Merrill downgrades Bear , Lehman page90LEHfalsetrue2pricetruefalsefalsefalsefalse0QuotefalsetrueChartfalsetrueNewsfalsetrueProfilefalsetrueAdd to Watchlistfalsetruetruehttp://api-cdn.cnbc.com/api/chart/chart.aspGE4true3 .Comment: the good news is that analysts are now addressing the bad news they anticipate receiving from brokers and some banks in September. Vince Farrell, on our air a couple hours ago, noted that "We need these downgrades to put a bottom in place."
The story is simple: the market is continuing to take down risk and price in a slowing of the economy. It needs time to do that, which is why sideways moves on light volume is fine. But there are also substantial bets being made that the U.S. economy will NOT slip into a recession--you can see this in the buying in materials stocks and global growth names.
This is a great time to be a trader and, more importantly, have a strong opinion on what is going to happen. You just need nerves of steel to execute.
Questions? Comments? tradertalk@cnbc.com