Fibonacci Forecast: Dow Drops 11%
Want to divine where stocks are headed? Try using the golden ratio, the formula that has long influenced artists, architects, scientists, and mathematicians, including Leonardo Fibonacci in the 13th century. In stock analysis the number is said to reflect changes in investor sentiment and thus potential turning points in the market. Relying on the ancient math, Rick Bensignor, chief market strategist for brokerage Execution LLC, claims the Dow peaked at 10,725 on Jan. 19. He came up with the prediction by multiplying the benchmark's low of 6627 on Mar. 6, 2009, by 1.618, the golden ratio. Now, he thinks the Dow may drop at least 11% from that high, to 9545 or lower. The golden ratio isn't a perfect science. If investors had applied the same methodology to the trough of the Nasdaq or the S&P 500 in March, it would have underestimated the rally by a few percentage points, says Bensignor.
Wells Fargo Braces for Rising Rates
Banks have been making fat profits by borrowing money at rates near zero and investing it in higher-yielding bonds. But Wells Fargo (WFC) is sacrificing some short-term gains to protect itself against rising interest rates. The bank cut its bond holdings by $34 billion in the second half of 2009, giving up $1 billion in profits, according to figures in the company's filings. Rivals Bank of America (BAC), Citigroup (C), and JPMorgan Chase (JPM) all added to their fixed-income portfolios in the same period.
Wells' strategy could pay off if rates climb higher or faster than expected; rising rates cut the value of existing bonds. "The bias is for higher rates," said Wells CEO John Stumpf in a conference call. "We're willing to wait for that to happen." He may have to wait a while. The Federal Reserve recently said it plans to keep rates low for "an extended period."
Psst! Looking for Hot Trading Tips? Ask Uncle Sam
The Federal Reserve may have some investing tips for Wall Street. The Fed, which mainly makes money off its portfolio of Treasuries and other securities, is set to earn $77.1 billion in net income this year, according to the budget President Barack Obama just presented to Congress. As a group, the six largest banks—Bank of America (BAC), JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS), and Morgan Stanley (MS)—are expected to earn only $55.3 billion.