March 18, 2011 Market Rebounds Again
Prices continued higher for the second day, generating a +2/-3 pattern as the week ended. Only 20 closes exist with that configuration, seven of which occurred since January 2010. In the past, the following day was mainly negative, with the DJIA falling five times and increasing twice. The other two indices were somewhat stronger, with only four declines and three increases.
The market, it seems, believes that the catastrophic news from Japan will have only a small, future impact. We base this conclusion on the difference between todays closing prices and last Fridays. A week ago, the world little knew of the terrible news to come. However, as conditions worsened, on Monday, Tuesday and Wednesday, security prices dropped.
Now prices, after advances yesterday and today, have recovered all but less than two percent of their close a week ago. The DJIA, for example, is worth only 1.54 percent less than at this time last week. The NASDAQ at -1.81 percent, and the S&P500s -1.92 percent steeper losses over the week seem slight in relation to the magnitude of the possible damages and future costs.
If this judgment of price is correct, then despite the huge personal and business costs in Japan, the rest of the world will feel only a slight impact. On the other hand, if this conclusion is too optimistic, then expect prices to fall once the actual impact spreads through the private and business world in the future.
DJIA .71 percent
NASDAQ .29 percent
S&P500 .43 percent