After its worst week since 2008, the stock market came roaring back. On Monday, the three major indices had gains in excess of two percent. Tuesday’s trading added another percentage point to the rebound. Most analysts are crediting enthusiasm with an anticipated resolution of the European debt crisis, as the reason for the bullish market activity. Nevertheless, there are several reasons for skepticism about this claim. For starters, consider this advice from economist Dean Baker:
Reporters should be given 40 lashes when they tell us that some specific event explains a movement in stock prices. The reality is that the reporter does not know what caused a movement in stock prices, all they can do is speculate.
Beyond that, Sue Chang of MarketWatch warned that euphoria over the European bailout effort could be premature:
Notwithstanding the media reports, the idea of reformatting the bailout facility was universally panned by European officials from Berlin to Madrid.
The bailout fund should look exactly as it was set out on July 21, said Steffen Seibert, a spokesman for German Chancellor Angela Merkel, adding that the German government doesn’t approve of further changes, the Wall Street Journal reported.
German Finance Minister Wolfgang Schauble also ruled out expanding the facility, calling the idea “silly,” the newspaper said.
Spanish Finance Minister Elena Salgado similarly dismissed the notion, stressing that bolstering the facility is not on the table, according to media reports.
For the time being, the multiple denials are having little impact on the markets.
The Dow Jones Industrial Average recovered another 146 points on Tuesday, closing at 11,190 for a gain of 1.33 percent. The S&P 500 rose by 1.07 percent to finish at 1,175. The NASDAQ Composite advanced by 1.20 percent to end the day at 2,546.
Miami-based corporations had a mixed day on Tuesday. Royal Caribbean (RCL) had an enormous gain of 4.59% to close at 23.00. Ryder System (R) jumped by exactly 3 percent, to finish at 40.55. Carnival Cruise Lines (CCL) advanced by 50 basis points (0.50%) to close at 32.25. Lennar (LEN) was the only member of the group to finish in the red, declining by 1.44% to end the day at 13.71.
The following companies will be playing “beat the number” on Wednesday, with the release of their quarterly earnings reports: Darden Restaurants (DRI), Family Dollar Stores (FDO), McCormick & Co (MKC), Mosaic (MOS), SMF Energy (FUEL) and Texas Industries (TXI). Good luck!
Comments