The Market: What the Pros Are Saying

A roundup of what market strategists and Fed officials had to say on Thursday, Sept. 4

From Standard & Poor's Equity Research

Beset by worries about a softening labor market—as evidenced by a larger than expected jump in weekly jobless claims—and general jitters about the health of the U.S. economy and financial system, the stock market took a pounding (BusinessWeek.com, 9/4/08) on Sept. 4, with the Dow Jones industrial average tumbling more than 300 points. The bond market rallied as investors sought the relative safety of U.S. Treasuries.

One of the things that weighed on investor sentiment: a stark warning from PIMCO bond guru Bill Gross. Here's what Gross, Wall Street strategists, and Federal Reserve officials had to say about the state of the markets and the economy on Sept. 5, as compiled by BusinessWeek and Standard & Poor's MarketScope staff:

William H. Gross, managing director, PIMCO

Common sense can lead to no other conclusion: If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury—not only to Freddie [Mac] (FRE) and Fannie [Mae] (FNM) but to mom and pop on Main Street U.S.A., via subsidized home loans issued by the FHA and other government institutions. A 21st century housing-related version of the [Resolution Trust Corp.] such as advocated by Larry Summers among others could be another example of the government wallet or balance sheet that is required during rare periods when the private sector is unable or unwilling to step forward.

…The bill for our collective speculative profligacy, obvious in the deflating asset markets, can be paid now or it can be paid later. Those aspiring for a perfect 800 on the Wall Street policy exam would conclude that the tab will be less if paid up front, than if swept under a rug of moral umbrage intent on seeking retribution for any and all of those responsible. Now that the Fed has spent 12 months proving that it "knows something"… it is time for the Treasury to do likewise.

Chris Burba, technical analyst, Standard & Poor's

There is a common pattern that occurs on days when the market gaps down hard and keeps going lower, amid very weak internals and TRIN (BusinessWeek.com) above 1.2. It's a bit like an earthquake, followed by a calm, and completed with an aftershock. After the initial wave of selling is exhausted, price forms what appears to be a convincing base that could reverse the intraday downtrend (usually late morning to early afternoon).…The market does indeed start to recover but doesn't get very far. Price then consolidates for a relatively long period, often an hour or two. Finally, the area of consolidation gives way, and sellers take the market below morning lows; this often occurs in the final hour of the session.