Here is a look at 1929 and today, plus is there pressure for a trade deal?
On This Day…
October 29 (King World News) – Art Cashin: On this day in 1929, there occurred what was, for more than half a century, possibly the most dramatic day in Wall Street history. The day before, a Monday, had been disaster. (Monday’s have a lousy record but the final Monday in October is the champion stinkeroo.)
As you may recall, markets had originally been reassured by Thursday’s dramatic bids into a falling market by Richard Whitney, on behalf of the Morgan inspired bankers’ pool. And, they were further assured by calming words from “The Harvard Economic Society”. Back on the 19th they said – – “….. if recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Reserve System would take steps to ease the money market and so check the movement.” And, the day after Whitney’s efforts the Harvard boys said about the severe slump in stocks “….. will prove an intermediate movement and not the precursor of a business depression…..”. (It would appear that the belief in a “Fed Put” may be as old as the Fed itself.)
Despite that, prices collapsed on Monday and Tuesday, the Harvard Economic Society doubted really dire consequences. As late as October in 1931, their Journal foresaw “….. an end of the decline and revival for the remainder of the year”. They might have said more but on this day (-2) in 1931 the Harvard Economic Society stopped publishing their Journal – – for lack of funds.
At any rate, on this Tuesday, traders were beginning to feel anxiety rather than reassurance. Monday, as noted, had seen prices melt below the levels where the bankers’ pool had bot during Thursday’s selloff. Piercing those levels had in fact brought in new nervous selling. Later testimony would assert that the bankers pool, seeing capital evaporate, had pulled back to plug future air holes. (Someone should read that record to regulators and academics who feel selloffs are a function of capital not sentiment.)
With the 1929 version of a circuit breaker having been overrun, selling became intense. Within the first half-hour volume exceeded 3 million shares. After two hours it was over 8 million. The selling was mindless. “White Sewing” which had sold at “48” weeks before and had closed at 11 3/4 Monday traded at one dollar per share. (Wall St. legend says the buyer was a page boy on the exchange floor who had put a “fun bid” in before the opening never dreaming he might actually “buy”.)
With prices in near free-fall, exchange officials called a secret meeting of the Governing Committee at noon. To preserve secrecy the meeting was held in the basement offices of the President of the Clearing House. They had invited two Morgan Bank partners to hear the views from the bankers’ pool. Unfortunately, to preserve secrecy they failed to tell security and the Morgan men were halted by a guard for over an hour. “We’re from the House of Morgan” the reply was probably “and I’m the king of bloomin’ Siam”. By the time the Morgan partners were admitted, the market had begun to rally and trading was never halted.
When the day ended, the tape was over four hours late and the volume over 16 million, a record that would stand for decades.
To celebrate have a pre-Halloween zombie with a coven of yuppies. But remember fondly that the hero of this tale of financial trick or treat was an individual, a two legged human, who, when the institutions panicked, put in a silly bid and got a great bargain. Nice trade, kid!
The bulls had the nice trade again yesterday as the S&P and Nasdaq closed at record highs.
There were several apparent factors in the on-going rally. There was continued optimism (hope) for a potential “Phase One” trade agreement between the U.S. and China. Earnings season continues to be okay with more companies exceeding estimates than is normal (albeit, the beats are smaller than normal). Also helping was growing faith that the Fed would certainly cut on Wednesday.
There were also some individual contributors. Microsoft helped boost the tech sector, rising nearly 3% after it was awarded a $10 billion government contract on cloud computing.
The rally was relatively broad with 9 of the 11 industry sectors in the S&P moving higher.
While the rally was broad by sector, it was not as broad in the number of stocks advancing. We had noted that narrowing of the action in Monday’s Comments.
Another technical divergence that tempered the bulls’ enthusiasm a touch was that while the S&P rose to a record close, less than 10% of its component stocks made it to 52 week highs. Not terribly bearish but not the kind of bullish confirmation you would like to see at a record high.
After the closing bell rang, there were few signs of the type of euphoria you might expect to see at a record closing high.
That led some traders to wonder if this rally might be ready to slow. That could happen if some folks look to lower their risk profiles as we head into Wednesday’s widely assumed Fed rate cut.
That could be a factor, as many assume that Powell will try to dampen market expectations in his comments after the assumed rate cut.
That could make the next few days of trading very interesting. We shall see.
Overnight And Overseas – Asian equity markets closed mixed. Tokyo saw a modest rally, while Hong Kong and Shanghai had moderate selloffs. India closed with a solid rally.
Europe is seeing some softness. London prices are moderately lower amid thoughts that Boris Johnson may call for an early December election. Paris and Frankfurt are seeing mild selloffs.
Among other assets, Bitcoin continues to consolidate its recent Chinese inspired gains. It is trading around $9500. Gold is a bit softer, slipping back below $1500. Crude eases further with WTI trading near $55. The euro shows little change against the dollar and yields are basically flat.
Consensus – New data indicates that the third quarter slowdown in China continued into October. Growth remains at the slowest pace in nearly three decades. Will that add to pressure to cut a trade deal?
Food prices in China move higher as swine flu continues to pinch. Stick with the drill – stay wary, alert and very, very nimble.
***KWN has now released Michael Oliver’s remarkable KWN audio interview and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
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