New York stock markets showed positive gains as the lowest oil prices in more than a year inspired investor confidence. The Dow rose 240 points having been down as much as 380 points in the late morning. Stocks were down in morning trading as investors responded to a pair of weak manufacturing reports, Merrill Lynch and Citigroup's losses and the decline in oil prices. Oil prices continued to decline after the government's weekly inventory report showed a larger than expected gain in crude and gas supplies. Perceptions of slowing demand have sent oil prices lower than the all time high of July, 11th.
The decline is seen by many as another indication of a global economic slowdown. Despite recent good news there is still a fear of a global recession with some saying the US has already entered a recession. Many analysts say that market volatility is here to stay. Said Gary Flam, portfolio manager, Bel Air Investment Advisors, "To a certain extent, we're in the middle of a hurricane, "It will pass eventually and we will get through it, but there's been a lot of damage."
While investors have welcomed recent government actions the negative tone of markets reflect the fact that the effect of many programs will take months to be felt. Recession fears sent stocks plunging Wednesday with the Dow falling 733 points making the session the second worst ever on a point basis. Adding to the bad news the Federal Reserve announced that factory production fell by the largest amount in nearly 34 years. The fall was blamed on the effect of hurricanes Ike and Gustav had on Gulf coast industry. The Philadelphia Fed index, a regional reading on manufacturing fell to an 18 year low. The Index had an original prediction of a decline of negative 5 while the actual figure was a whopping negative 37.5 far exceeding the original forecast.
Lending rates improved slightly with the overnight lending rate falling to 1.94% down from 2.14% late Wednesday. The 3 month LIBOR fell to 4.50% down from 4.55%. The TED spread which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays narrowed to 4.11% from 4.31%. The spread hit a record 4.65% Friday and the wider the spread the more reluctant banks are to lend to each other. This is certainly not good news for credit markets or interbank Forex markets.
Although the performance of markets this week has been hopeful the long term does not look positive. Negative economic indicators and recession fears are looming in the background and psychology plays a big part in market performance. The positive effects of many bailout programs will take months to be felt and investors are sure to be in for a wild ride. Interbank lending is important for Forex traders and markets. Fortunately for Forex investors, currency does not fluctuate as wildly as stocks and securities and many Forex investors have made impressive gains despite the global economic crisis.
Complicating this are some general market trends, which have been determined historically to exist. Like their share-price-based brothers, these stock market anomalies may provide buying opportunities for investors. These anomalies include:
Price-based regularities:
1. Lower-priced stocks tend to outperform higher-priced stocks, and companies tend to appreciate in value after the announcement of stock split.
2. Smaller companies tend to outperform larger companies, which is a key reason for investing in small cap stocks.
3, Companies tend to reserve their price direction in the short and long-term.
4. Companies that have a depressed stock price tend to suffer from tax-loss selling in December and bounce back in January.
Calendar-based regularities:
These regularities allow you to better time your investments in the short-term. Although investors should remember that over the long term the benefits of a regular investment plan (investing each month) far outweigh the benefits of trying to time your investment by a day or two, the following patterns have been shown to occur.
1. Time-of-the-day effect. The beginning and the end of the stock market day exhibit different return and volatility characteristics.
2. Day-of-the-week effect. The stock markets tend to start the week weak and finish the week strong.
3. Week-of-the-month effect. The stock market tends to earn the majority of its returns in the first two weeks of the month.
4. Month-of-the-year effect. The first month of the year tends to show increased returns over the rest of the year. This is referred to as the January effect.
Investors should remember that not every anomaly comes about every time, but making sure you're aware of anomalies will allow you to profit over the long-term and deal with market volatility in the short-term. In short, profit from these anomalies, but don't aim to make use of these anomalies at the expense of your long-term investment objectives.
Both Anthony Wayne & Tony Reed are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Anthony Wayne has sinced written about articles on various topics from Distance Learning, Currency Trading and Interest. Anthony Wayne works in the marketing department of the Interbank-FX in Pennsylvania. He is also editor of the Forex Network Site a network of. Anthony Wayne's top article generates over 165000 views. to your Favourites.
Tony Reed has sinced written about articles on various topics from Stock, Investments and Hedge Funds of Funds. About the author: Tony Reed is the author of " ", please visit his website. Tony Reed's top article generates over 201000 views. to your Favourites.