Weak Economic Reports Should Not Be Surprising

The market was higher in the first hour of trading on some solid earnings reports and news of another European bank bailout. But as the economic news hit the wires, the market began to rollover again. Weak economic news should be expected right now, given the credit crisis. That is a given.

The Philly Fed Survey came in at -37.5, a very weak number. But we knew this after seeing yesterday's NY Manuf. Index. Industrial production also fell -2.8% in September (vs. -0.8% consensus), hurt by the labor issues at Boeing. On a positive note, the CPI report was flat for September, and gas prices continue to fall.

Banks and financials are lower this morning after earnings reports from Citi (C) and Merrill (MER) showed expected losses and additional write-downs. On the positive side, the Swiss govt. will inject $5.3 billion into UBS and assume $60 billion in risky assets from the financial firm.

I have talked about the deleveraging at hedge funds, as well as investor redemptions that are causing forced selling. Today, Highland Capital said it is unwinding and closing its flagship fund, which at one point had as much as $3.5 billion in assets. This fund is a credit product, so its unwinding surely has exacerbated some of the angst in the bond market.

There were some good earnings reports. United Tech (UTX) posted better-than-expected earnings and slightly raised its guidance. That is a strong showing in this environment. Conversely, EBAY reported good earnings but lowered its guidance materially. I think some of this has to do with market share loss to Amazon (AMZN) and other online retailers.

Asian markets were down significantly across the board overnight. The dollar is higher this morning, and commodities are lower (oil, gold, etc). The 10-year yield is lower at 3.94%.

Fear is rampant again this morning, with panic selling. The "fear index", or VIX, hit a new high at 81.17. This is an extraordinary level, to say the least.

I think another tradeable low is coming in the market, but I have not bought anything yet. I will likely look to use some ETFs to mitigate the individual stock risk in this environment.