CHESSNOID

The stock market today opened up in negative territory today at the news of Amazon beating expectations by a penny. Normally, this would send its stock price up, but investors weren’t happy with revenues quadrupling with profits staying the same. Amazon’s stock tumbled 16% at the opening of the bell.

The market is becoming more sensitive to the news. I think now investors are really starting to see what this credit crunch is all about and may realize its impact on the market and economy. A lot of experts are downplaying the effects of the credit crunch and a few are even stating we hit the bottom. In my opinion, we are just getting started. The rationale is 6 years of exuberant gains can’t be fixed overnight with a 1/2 percent rate cut. According to Yahoo Business news:

The market got one of its most-feared scenarios: Not only is the housing implosion dampening corporate profits, it’s accelerating.Merrill said it wrote down $7.9 billion in fixed-income instruments called collateralized debt obligations and from defaulting subprime mortgages — more than the $5 billion writedown the investment bank estimated earlier this month. The result was a net loss for the quarter of $2.3 billion.

The worse-than-anticipated loss indicated the financial sector may be in a more dire situation than anticipated because of the credit squeeze that was triggered in part by spikes in mortgage defaults. In a conference call with investors, Merrill CEO Stan O’Neal pointed to “renewed signs of volatility and weakness” in the market environment. Merrill shares dropped more than 5 percent.

The sinking housing market could aggravate the credit markets’ troubles. The National Association of Realtors reported that existing home sales fell in September for the seventh straight month by a larger-than-expected 8 percent — the largest decline in records dating back to 1999.

Every quarter, the housing related industries will keep putting out negative information as all those subprime loans start to mature and reset. I am guessing that will last 4-6 quarters. I am basing that on the subprime charts that I have seen put out by BofA analysts. Most times the market will have this information already factored in, so when the news comes out there usually is not much of a reaction.  When I see the reactions like this,  it makes me think that investors are still in denial of the coming recession or too optimistic that the federal reserve can prevent it from happening.