Sam Collins

A Strategy for a Confounding Market

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Yesterday, stocks started off very strong, with the Dow Jones Industrial Average (DJI) up more than 100 points in the first 30 minutes of trading. It finally looked like we would get the rally that everyone has been expecting after the drubbing on Monday. But then prices sagged until the FOMC announcement at 2:15 p.m.

And, at 2:15 p.m., the announcement that everyone expected, i.e., no change in rates, came. However, what almost no one could have predicted was the market's response -- it plunged. Within minutes the Dow's triple-digit gain disappeared and, despite a minor rally, closed down for the day.

What seemed to bother investors were the Fed's comments about the economy, which they said was "likely to remain weak for a time." And, "economic conditions are likely to warrant exceptionally low levels of the fed funds rate for an extended period of time."

Big deal. I wonder what folks thought that they were going to say. Perhaps they were expecting, "Well everyone, the recession is over and you can go back to work now."

Durable goods orders for May were a very pleasant surprise, up 1.8% and topping estimates of a 0.9% decline. But May new home sales offset the good durable goods numbers. Sales of new homes fell at an annualized rate of 342,000 units, which was below the consensus estimate of 360,000 units.

There were several reasons for the decline in the Dow compared to modest advances in the S&P 500 (SPX) and Nasdaq (NASD). First was the cancellation by Boeing (BA), down 5%, of the first flight of its 787 Dreamliner, and then the 2% drop in American Express (AXP). But Nasdaq rose in response to Oracle's (ORCL) better-than-expected earnings outlook.