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Four at Four: Post-Thanksgiving Gut PunchYesterday

Can the market walk this one off? A pullback had to be expected after the S&P gained 19% in a brief five-session flurry beginning November 21, but this is more than was requested, and suggests, again, that investors had been riding a bear-market rally, one that was designed to suck in a handful of believers and blow them up, but good. Overseas markets, a terrible report from the Institute for Supply Management on the manufacturing sector, and a safe-haven flight from equities contributed to the losses. Fed Chairman Ben Bernanke also played a part, saying more rate cuts may be on the way, which may have undermined stocks because his words suggest economic weakness (and previous cuts have not been able to support markets for more than a little while). Citigroup lost 22% and General Electric dropped nearly 10%. On a day when the market learned that the economy officially entered into a recession one year ago, thus already making this the longest contraction since 1982, the ISM survey brought into focus just how terrible a quarter the fourth one is going to be. Macroeconomic Advisors was already expecting a 4% decline in GDP in the fourth quarter, prior to this report, and this one confirms the ongoing sour picture. There’s an old saw about the market beginning a recovery some months before the economy does, and that is well true. Economic d

Video: Central Bank WatchYesterday

Simon Constable and David Gaffen wonder what the Bank of England, the ECB and the Bank of Japan have left in their box of tricks when they meet later this week. They also discuss the slew of economic data set to be published this week, most of it expected to be gloomy.

Retail Discounts Can Only Continue for So LongYesterday

The holiday shopping season kicked off with a better-than-expected Black Friday, but investors would be smart to remain cautious of the retail sector, despite the usual euphoria that surrounds these shares on an annual basis during this season.

Friday’s data raised a bit of hope, as the National Retail Federation estimated shoppers spent an average of $372.57 over the weekend, up 7.2% over last year’s $347.55. But consumers stayed away from all but the best deals, and the outlook for the holiday season may have merely been upgraded to “cautiously optimistic” from “frightened.”

However, it’s the ongoing economic trend that has investors more concerned. With the economy in the midst of its first recession since 2001, U.S. consumers are adjusting spending habits and learning to save again, and they’re also busy paying down debt, a process that may take some time, according to Henry Mo and Kathleen Stephansen, economists at Credit Suisse.

They note that the household debt-to-net-worth ratio reached 25% in the second quarter of this year, likely a peak, and that the decline from peak levels in the past has worn on for an average of 12 quarters as debt-to-net-worth declines by 10%. “Average GDP and consumption gains tend to be modest in the periods of de-leveraging, compared to the robust growth in the leveraging peri

Crowding Into TreasurysYesterday

Treasury bond yields have cascaded to new historic lows Monday, and strategists expect the persistent buying in government securities to continue even as the Treasury Department continues to flood the bond market with new sales.

One would think that the additional supply would cause a bit of a “crowding-out” effect, causing yields to rise, but the market has not had a problem absorbing new Treasury supply just yet. “All the supply the Treasury comes with gets gobbled up and distributed,” says Ray Remy, head of fixed income at Daiwa Securities. “It may become an issue next year and will become an issue if the credit crunch goes away, but now it’s not a problem.”

The two-year note was yielding a mere 0.96% and the 30-year bond’s yield fell to 3.30% amid fresh buying by investors after poor global economic news and reversal of the recent positive trend in equities. What’s also having an impact is the impending launch of the Federal Reserve’s plan to buy agency securities, which will remove gobs of long-dated supply from the market, and causes dealers to need to offset those sales with purchases of other long-dated paper.

The government bond markets are also seeing an influx of investors who formally invested in other types of complicated fixed-income instruments. “There’s a reverse crowding-out going on,” says Thomas di Galoma, head of U.S. treasury trading at Jefferies & Co. “The other asset classes don’t exist any lo

Video-Game Shares Fall, Despite SalesYesterday

The prevailing thinking with regard to Black Friday was that retail spending was a bit stronger-than-expected, but mostly driven by massive sales that brought in consumers on Friday, and remained on the frugal side throughout the weekend.

For the video-game makers, expectations were a bit higher: The industry has been less susceptible to the vagaries of the economy, though it is surely being tested in what is now officially the first U.S. recession since 2001. After the first big holiday shopping weekend, analysts were guardedly optimistic on the gamemakers, while shares of those stocks were weak Monday.

“We believe video game sales were fairly brisk over the holiday weekend — likely showing growth over last year on the key Friday and Saturday shopping days after Thanksgiving,” write analysts at Lazard Capital Markets, citing online shopping engines that suggested that “video game products continue to be among the most sought-after gifts for the holidays.”

Among the major companies in the industry, THQ Inc. was down 11%, while Gamestop lost 10.6% of its value. The most actively traded name was