A Big Day – But Hold the Applause

It was a big day for the market.

The Dow had the biggest one day point gain in history, jumping over 936 points. The S&P 500 was up over a 1000 again and the Nasdaq had the biggest percentage gain by rising +11.8%. If you watch CNBC, you knew something was different by all the smiling hosts.

It started this morning across the pond when the British government gave three banks £37 billion ($64 billion) according to Bloomberg. In addition, EU nations plan to provide over €1.3 trillion ($1.8 trillion) in loan guarantees and capital to European banks. It’s sometimes hard to see what changes the investor sentiment, but it looks like this was the reason for buying today.

Earnings May Affect Gains

Not to throw cold water on the day’s events, but here’s a few facts to consider. Earnings season is upon us. Many companies are on tap over the next few weeks including 3M (MMM), American Express (AXP), Apple (AAPL), and Yahoo (YHO). Third quarter earnings and guidance for the next quarter is sure to send shockwaves throughout the market. VIX levels remain high with volatility being the rule rather than the exception. Ironically, if anything can be counted on, it’s more uncertainty.

Bill Gates and Jeff Immelt Do Not Call ‘All Clear’

There are other signs for concern as well. Microsoft co-founder, Bill Gates, is bearish on the economy, if not the whole market. In remarks to Harvard Business School, he said he foresees a “fairly significant recession”. Moreover, he sees unemployment peaking at more than 9%. Not a very rosy picture.

Jeff Immelt, CEO of General Electric (GE), had similar feelings. He’s now confident the U.S. economy will see two quarters of negative growth commenting that the latest market action has been “unspeakable, undreamed-of, and really, really tough.”

If Immelt is right, and the U.S. economy sees 6 months of recession, that’s not too bad. The market typically looks ahead two quarters and prices future economic realities today. But if Immelt is wrong and recession lasts longer than he expects, we are in for more pain. At this point, even the most optimistic observers have been wrong – it’s not hard to imagine more “undreamed-of” realities occurring in the next few weeks.


Cash is still attractive. We may look back at this day as a great chance to jump out. Then again, it could be the start of another rally – doubtful, but possible. Unfortunately, none of us have the benefit of a time machine.

photo credit: Multiple fragments of tissue