The Market Today

On Friday morning, the government will report on third-quarter GDP and right now, the bond market is in full retreat. The yield on the 10-year T-bond is close to 4.6%, and the yield on the 30-year bond is up 4.8%. The bond bulls are scared and they’re right to be.
After telling us for months how the consumer is tapped out and energy prices are burying us, the market is finally realizing what I’ve been saying all along—the economy is very strong. According to surveys, Wall Street’s estimate for third-quarter GDP growth is 3.6%. That’s way too low. I expect to see a number over 4%. In fact, I wouldn’t be surprised to see a number over 5%.
After more than three years, we might finally break the bond market’s tight trading range. The yield on the 10-year has traded between 3% and 5% everyday since June 11, 2002.
As long-term bond yields rise, cyclical stocks tend to outperform consumer stocks, and that’s exactly what happened today. The Morgan Stanley Cyclical Index rose 0.52% today, while the Consumer Index dropped -0.19%. What’s interesting today is that the cyclicals were not led by energy. Energy stocks were among the poorest performers today. Some of the big winners included stocks like Dow Chemical (DOW) and International Paper (IP).
The yield on the 90-day T-bill fell back some, but it’s still above the Fed’s 3.75% target for the Fed funds rate. This fits a pattern. Rates will be going higher next year. Yesterday, the futures markets was telling us that there’s a 64% chance that the Fed will raise rates in January. Today, there’s a 76% chance.
Our Buy List eked out a tiny 0.03% gain for today, while the S&P 500 lost -0.43%. Although we had some trouble spots; Medtronic (MDT) and St. Jude Medical (STJ) were subpoenaed by the government for info on their heart-device businesses. There have been some concerns about pricing strategy in this sector.
As a rule of thumb, I don’t get too worried about these sorts of things except that Guidant (GDT), which is not on our Buy List, was also subpoenaed. Guidant is just one of those stocks that you have to stay away from. Everything they do seems to turn out wrong. I’m curious to see what J&J (JNJ) will do with Guidant.
Brown & Brown made another new high today. By the way, IBD had an article on new market leaders, which includes insurers and medical device companies, two of my favorite sectors.
Three of our stocks reported earnings after the close today. Zimmer Holdings (ZMH), which has been getting slammed lately, beat by three cents a share and guided higher. Our star stock of late, Varian Medical Devices (VAR), beat by two cents a share. The company also guided higher for next year. The stock is down after-hours, but it’s done very well recently. CACI International (CAI) reported inline and guided slightly higher for next year.
Outside our Buy List, Amazon.com (AMZN) dropped -13.9%. Google (GOOG) busted the $350 barrier. Human Genome Sciences (HGSI) lost three cents a share today. And Cendant (CD) still sucks. It lost 3.6% and made a new 52-week low. Again.
Finally, Baidu.com (BIDU) reported earnings of $1.1 million. That’s not a typo. Baidu made $1.1 million with an M. The company has a market value of $2.6 billion. That is, until trading opens tomorrow.

Posted by on October 26th, 2005 at 5:48 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.