The equity market is getting hit today due in some part to the General Motors earnings warning. Being a Dow component, it is clear that the Dow would reflect the GM news. What is not clear is why the S+P 500 would be down a similar percentage.
GM was about a $19 billion company before the news. That a company of this size could provide such leadership would not have been obvious to me. It would make more sense that GM would cause problems in the debt market. I heard that GM is the third largest issuer of corporate debt. I didn't know that but I did know that they are a big player in the debt market. They provide a source of fixed income liquidity for capital markets. This is an important thing.
Despite what I think may be an insignificant company for the equity market, GM is an American icon. A company of this stature having what looks to be problems getting worse, not better, is a reason for equities to drop on sentiment if nothing else.
Looking at the bigger picture I think this might turn out to be an important message from the market. If demand for equities was in good shape I think the market could shrug off bad GM news.
I also don't necessarily think oil is too much to blame today. The SPX was already down before oil started to print above $56. We may see oil take more of a center stage later today but GM was clearly the catalyst for a down day, at least to start.
Very few of the domestic stocks I watch are up today but close to half of the foreign stocks I watch are up. I have been writing about this for a while. Foreign may do very well on a relative basis. I quoted Joey Bats from CNBC saying foreign returns don't look compelling. I don't think he gets it, meaning he has not learned from his mistakes. I don't know if that is right, but I will keep my fingers crossed for his clients.
I am afraid that I think the US market will continue to erode for a while. My trigger point for changes will be a breach of the 200 DMA on the SPX but I think there is now a higher probability of such a breach occurring. I hope I'm wrong.
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2 comments:
I think the reason why GM spooked the market has a lot to do with the suspicion that the root of the problem there is that the channels have been stuffed with the results of the post 9/11 zero-rate-financing "buy an SUV for America!" push. If GM is finding its consumers stuffed full of durables, then that's an economic reality which has much, much wider application.
I think the reason why GM spooked the market has a lot to do with the suspicion that the root of the problem there is that the channels have been stuffed with the results of the post 9/11 zero-rate-financing "buy an SUV for America!" push. If GM is finding its consumers stuffed full of durables, then that's an economic reality which has much, much wider application.
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