Market Talk

How'd the rally get all the way back there?

US stocks slide as Dow falls under 8200 for the first time since May 1, as more steam comes out of the market’s rally. That’s fueling more talk of a second stimulus package, some of it from the administration itself, even though the first one’s just cranking up. (Video commentary here.)

Meanwhile, auto-parts maker Lear files for bankruptcy protection, the eighth auto-parts maker to do so so far, and surely not the last. And while Lear pretty much worked out all the messy details ahead of the filing, it is a large supplier and there’s some worries about the possible knock-on effects.

DJIA drops 161 (1.9%) to 8164, lowest close since April 28. S&P loses 18 (2%) to 881; index’s midafternoon slide below 890 opened door for more selling. Nasdaq Comp falls 41 (2.3%) to 1746, DJ Transports slide 3.2%. Stocks close near session lows; volume’s weak. Crude slides below $63/bbl.

We’ve been doubting the rally since it started, so we’re not surprised to see this turn of the screw. But, boy, if the indexes really do sink back to a retest of the March lows, you’re going to see a lot of nervous people walking around New York and Washington, and everywhere else, actually. And if they fail that test, well, at the least, you can stop waiting for those consumer confidence reports to come out.

And how about this story from the WTO, that it thinks the worst social and political effects of the crisis haven’t been felt yet, and when they hit it could result in more trade protectionism. Ah, won’t that be just grand?

Former IMF chief economist Simon Johnson picks up on some comments from NY Fed President William Dudley that were released during the 4th of July weekend and may’ve fallen under the radar.

Dudley says the Fed can pop or prevent asset bubbles from developing. According to Washington Post:

The Fed’s view has been that bubbles can be identified only in hindsight, and that all the central bank can do is prepare to clean up after they burst. The current crisis shows that policy is mistaken, Dudley said.

“Asset bubbles may not be that hard to identify,” he said. “This crisis has demonstrated that the cost of waiting to clean up asset bubbles after they burst can be very high.”

Nevertheless, Johnson remains skeptical.

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Rolling Stone? Rolling Stone!? Can't they just stick to Usher and John Mayer?

Is it us, or does Goldman Sachs suddenly seem…touchable?

Through the subprime meltdown and credit crisis, Goldman seemed like the one firm that was untouchable. The masters of the masters of the universe. The hedge funds melted down. Bear Stearns disappeared. Lehman Brothers disappeared. Citigroup was saved only by the grace of Uncle Sam. Financial carnage tore apart Wall Street. Goldman endured. Nobody or no thing could lay a glove on them.

But lately it seems like some blows are landing.

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You might want to queue up Jimmy Cliff on the old iPod.

Investors are sitting in limbo today and likely tomorrow, eagerly awaiting the kickoff of 2Q earnings season with Alcoa’s report after tomorrow’s close, and no important economic data to influence trading.

Treasury auction’s $35B in three-year notes today. Commodities are bouncing a little, oil back more solidly above $64/bbl; gold, copper moving higher.

Stocks in Europe are advancing, US stock futures pointed slightly lower, S&P’s down 2.00, DJ futures down 17. Ten-year lower, yield at 3.55%.

Last week’s jobs report really wrecked the green-shoots narrative, and now there’s a lot of scrambling for a new story. Of course, not all of them are as palatable. UBS wonders if we’re seeing some deja vu from 2002.

“Following a one quarter post-9/11 rally in which the S&P 500 rose roughly 20%, the S&P 500 fell roughly 30% in the first three quarters of 2002, despite still favorable Fed rates and rising GDP over the same time frame,” firm says. Sounds kind of familiar.

“We note that unique issues of 2002 were accounting scandals and lack of trust in financial statements. Indisputably, numerous other differences exist between the current downturn and 2001-2002 and we do not view this bullet as a forecast,” UBS says.

Still, “our key point is that despite the economy starting to demonstrate recovery in 2002, the S&P 500 declined roughly 30%.”

And as UBS’ Art Cashin said on CNBC this morning, the whole ”second derivative” thing – that the decline in the rate of decline was somehow a good thing – was itself a “bull derivative” and investors are going to need to see some actual good news if stocks are going to go higher.