Sense on Cents

The broad equity market indices are down 3+% on the day. Why would that happen when the bulk of company news today was generally positive?  At least on the surface the news was positive:

1. Bank of America posted .44 earnings per share vs. expectations of .04
2. Eli Lilly earnings were up 23% outpacing expectations.
3. Halliburton disappointed with earnings down 35% but that is due to the massive correction in the price of oil from a year ago.
Merger Activity:
4. Oracle is purchasing Sun Microsystems in a $7.4 billion deal.
5. Pepsi is buying two bottling companies for $6 billion.
6. Glaxo is purchasing Stiefel for $2.9 billion.

Leading economic indicators declined by .3 but that decline is offset by an improved reading from the prior month.

Then, why is the market down so much? Two reasons are promoted, but only one of them is getting proper coverage.

Market analysts supposedly are focused today on the ongoing increases in chargeoffs and writedowns on the loan portfolios in the banking industry. These loans consist of credit card loans, residential mortgages, commercial mortgages, and corporate loans.

I don’t buy this line of reasoning for today’s selloff. Increased chargeoffs and writedowns have been widely expected for a while. The level of reserves taken by the banks has been widely panned as being insufficient. Then why is the market down so much? (more…)