COUNTDOWN

Are we on some kind of a wicked countdown by any chance? The S&P 500 index lost 1% Thursday leaving it up 16% for the year. That came as shares in builder DR Horton slumped 4.2% and housing sensitive issues such as Alcoa and General Electric shed about half that amount on the day. It was news that housing sales slowed way down that captivated the fears of investors as the week heads to a close.

After the midweek statement from the Fed that it recognized signs of strength but denied the notion that it should take away any part of the accommodative policy, bond yields began to nudge lower while dollar buyers came out of eth woodwork in search of safety.

To say this is not the picture we'd expected to emerge this week is an understatement. Yes, there are signs that equity prices may have become stretched in valuation terms. But one has to appreciate that at the onset of a growth cycle, earnings expectations can quite safely run well ahead of actual events. Put another way, it's quite safe to live in cloud-cuckoo land for some time, which is why we've steadfastly refused to stand in the way of the rally for stocks of late.

Unusually the market failed to get a lift from a more positive tone to jobless data. Both jobless claims and continuing claims for unemployment benefits fell further than investors were hoping for. Yet still scant signs of a rally as the market repeated its midweek performance of a decline.

The S&P financials index declined by 1.8% - not the biggest sector decline - wearing away the gains of 143% from the depressed March lows.

Investors are growing wary of discussions at the Pittsburgh G20 meeting, which they fear might result in more stringent demands from bankers, thus crimping profits. The message on investors' minds seems to be that if central bankers and politicians fear that recovery is not yet warm enough, then maybe living in cloud-cuckoo land is not a good place to be just now.

August home sales slipped 2.7% in August to a 5.1 million annualized pace helping to send real estate companies lower by 3.6%. Apparently this eclipsed the better unemployment data Thursday as more and more distressed sales conspired to coerce selling prices lower.

Raw materials producers lost 2% while energy companies dropped 1.3% as commodity related companies came off the boil and commodity prices edged lower. Copper prices reached a one-month low while the price of gold fell the most in two months as the dollar's advance gained pace.

Speaking of which, we look forward to Friday's closing price of gold to find out who won a spot in our Global Resources Alert - we had plenty of good answer, but most readers trod carefully and chose a price below $1,000 per ounce. Unusually canny! We look forward to welcoming the winner on Monday.

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