Wall Street's Bull Market Starts to Unravel

by John M. Curtis
(310) 204-8700

Copyright April 4, 2013
All Rights Reserved.                                         

        Pointing to weakness in the economy and grumbling at the Federal Reserve Board over ending the $85 billion a month, Treasury Bond-buying program known as QE3, Wall Street took profits, dropping the Dow Jones Industrials 0.76% to 14,550.  While official Labor Department numbers aren’t out until Friday, the ADP National Employment on private-sector employment showed the monthly jobs number at round 158,000, far under the expected 200,000.  Expectations of lowered employment mirrors softened business demand moving forward.  Both the tech-rich Nasdaq and S&P 500 dropped over 1%, signaling that market-makers, like Goldman Sachs and JPMorgan, have transmitted sell signals to the nation’s biggest funds.  Since bottoming out in March of 2009, all major indexes have risen around 80%, propelling President Barack Obama into his second term.

          Some economists believe that Wall Street’s rise from zero to hero was based artificially on Fed Chairman Ben S. Bernanke’s repurchases of Treasury Bonds called QE3.  When Bernanke dropped the federal funds rate down to 0-.25% in 2009, it robbed back depositors and pumped Wall Street up with steroids.  “People continue push the thesis that the bull market will remain in tact as long as housing continues to be strong, and there well be a little doubt put on the these if the jobs number Friday is underwhelming,” said Michael James, Managing Director of equity trading at Los Angeles-based Wedbush Securities.  Hinting that the Fed could pull the plug on QE3 sent investors heading to the exits.  While some pointed to growing prospects of war on the Korean Peninsula, Wall Street doesn’t need much after the current bull market to sell-off and take profits.

             Hitting all-time interday high of 1,576, the S&P 500 raised real concerns about  the next great Coney Island roller coaster ride.  Bernanke’s artificially low interest rates and Wall Street’s spectacular rise are attached at the hip.  While it’s true that the real estate market continues to improve, it’s also true that it could head south quickly.  With a weak March jobs report Friday, Wall Street’s slide could gain momentum if short sellers begin to take over.  Troubles brewing in the Eurozone over the banking cash-crunch in Cyprus also don’t bode well for Wall Street.  Any major geopolitical event, like more saber rattling in the Korean Peninsula, could also trigger profit taking.  If Friday’s jobs report looks a bad as expected, it could signal the end of today’s bull market, given that an equity bubble has already reduced Wall Street trading volume, prompting a serious market correction.

              Signaling that the sell-off is for real, commodity prices also fell with stocks, increasing U.S. petroleum stockpiles to a 22-year high.  When commodity prices fall with stocks, it usually hints at a weaker-than-expected economy, where jobs growth can’t keep pace with employment demands.  When lawmakers couldn’t agree on so-called “sequester” or $85 billion in mandatory yearly spending cuts, it signaled that federal government would trim thousands of federal jobs. .Obama and Democrats on the Hill fought hard to end the sequester to preserve federal jobs.  Former GOP presidential candidate Mitt Romney and his VP pick Rep. Paul Ryan (R-Wis) urged the government to slash more federal jobs.  Higher unemployment correlates with lowered consumer demand, something that, in turn, discourages hiring managers from adding new jobs when jobs picture looks bleak.

             Watching gold prices slide should remind all investors, regardless of the types of equities or commodities, that what goes up must come down.  Today’s stock and commodity market bubble tells investors that price-points continue to dictate the market.  When Apple Inc. hit an all time high Sept. 13, 2012 of 683 a share, no one expected that it would lead the way in a stock market slide, closing today and $432.  Whether Apple Inc.’s 37% drop anticipates the overall market decline is anyone’s guess.  At its current value, investors are starting to buy back shares.  “Fundamentals have been bearish on crude,” said Bill Baruch, senior market strategist at Chicago-based Itrader.com.  “We have some economic reports that are pretty disappointing,” namely, that U.S. crude oil inventories have reached 22-year highs.  As the oil-fracking industry ramps up in the Midwest, crude oil prices should drop more.

             Wall Street’s latest bubble seems ready to pop, dragging commodity and share prices down to affordable levels.  Anticipating the current slide, Apple Inc. has been out in front of the curve losing 37% of its inflated value.  Expectations of lower growth and rising global concerns in the Korean Peninsula, financial problems in the Eurozone and a weak jobs report all point to a more prolonged market sell off.  While the bulls continue to run Wall Street, the bears might take over soon, giving the inflated nature of most equity and commodity prices.  Anticipating an end to the Fed’s QE3, Wall Street must discount share prices into the foreseeable future.  With massive cuts in government spending and the Fed curtailing QE3, fiscal conservatives, led by 41-year-old House Budget Committee Director Paul Ryan (R-Wis.), have finally gotten his way of gridlocking Washington and taking down the economy. 

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.