No buyers showed up on Wall Street this week.
It sounds like a simplistic excuse, but traders say they don't see real buyers, and that's why the stock market spirals lower and lower. The Dow fell 508 points Tuesday to lose another 5.1 percent. The S&P 500 lost 60 points or 5.7 percent, to 996 -- its first close below 1,000 since Sept. 30, 2003.
Yet, we hear some major investors starting to say they see good opportunities among the rubble in a stock market that has lost about 15 percent in five days and 20 percent since Sept. 8.
The selling will continue though until the market sees something to inspire confidence. But from where? It might be the uncrunching of credit markets. It might be temporary relief from the blast of an interest rate cut from the Fed. Either way, the market is feeding on fear and fear doesn't buy stocks.
The fear also never sleeps. It has been circling the globe, ripping value from equities markets on all continents and leaving a scared investor class in its path. Wall street wakes up to fear and goes to bed to fear.
But this won't be the case forever. A lot of traders say they are waiting for one more ugly breakdown before it gets better, and remember, we've heard over and over again the fear level in the stock market just hadn't been high enough. Well, it's pretty high now.
Fed Chairman Ben Bernanke spoke to a group of economists Tuesday, and as he spoke the market lost ground and headed to its lows of the day. Bernanke said economic conditions are worsening and indicated that the Fed would consider interest rate cuts. But the market was hoping for an actual cut Tuesday, along with news from the Fed that it would buy commercial paper in an effort to jump start the ailing commercial paper market.
The Fed also this week said it would pay interest on commercial banks' reserves, a back door way to lower interest rates for banks without actually cutting the Fed funds target rate. This follows last week's approval by Congress of the $700 billion bailout bill allowing the government to buy mortgage securities from financial firms. The Fed also this week said it has doubled the amount it will provide to banks in cash loans to $900 billion.
Imagine the Fed and Treasury running an emergency room. They are using every instrument they have to pump life into the banking system as new patients continue to arrive at the door.
PNC's Bill Stone said the Fed and Treasury have taken unprecedented steps to end the credit crunch. "Now we just doubt everything. It will eventually work. I really believe that. People are worn down. Each piece hasn't worked so far. Eventually it will work."'
As for the stock market, "oversold can continue to be oversold," he said. Stocks can also get to a point where valuations do not matter, and it seems like that's a point that is getting closer.
Will it be like this again Wednesday? Most likely. On Wednesday, the government of the United Kingdom will announce a plan to bail out its banks, one of the biggest banking system bailouts since the financial meltdown began.
The first earnings news of the quarter was not great. Alcoa disappointed with an earnings miss and it blamed falling aluminum prices and a drop in global demand. It earned $268 million, compared to $555 million the year earlier.
Alcoa is the first major Dow component to report for the third quarter, and its earnings are the traditional start of the earnings season which ends with Wal-Mart's quarterly report weeks later.
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Earnings are expected to be weak in the third quarter and companies are expected to warn about the fourth quarter and even next year. "It's hard to believe you'll see a ton of the impact to the credit crunch in the third quarter, although the wild card is always the financials. You might see more write-offs and more pressure from that," said Stone.
"Frankly, you've got to make it through the credit crunch to get to what will eventually be a better time, but the problem is you've just got to get there. Just make sure you're in the highest quality. They'll ultimately be able to grow value at this time. You might not see it in their stock prices," he said.
But Bank of America by the end of the day priced its 455 million shares at $22, raising $9.76 billion. Throughout the day Tuesday, traders said there was speculation Bank of America was having a difficult time with the offering.
In late news, MetLife said it too was raising capital in a 75 million share offering and it preannounced earnings of between $1.38 to $1.58 per share. The company said its variable investment income was below plan because of negative hedge fund and private equity returns and the stock markets performance.
Data for Wednesday is the pending home sales report for August, due at 10 a.m. Investors will also be looking ahead to chain store sales, reported by retailers Thursday.
Investors will also be mulling Tuesday's debate between Democrat Barack Obama and Republican John McCain.
Dollar DazeThe dollar Tuesday fell 0.7 percent against the euro and 0.3 percent against the yen .
I'm sure many of you have seen this portrayal of the greenback. Thanks to whoever started sending it around the office email circuit. I've seen it go by many times in the last week from all parts of the U.S. But for anyone who missed it, enjoy. A picture is worth a thousand words.
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