Yeah, I Dunno What To Say: Dow and S&P 500 At All Time Records On Biggest Up Day In 4 Years

“What you’re seeing is a very cautious shopper that’s pulling back on major purchases.”

– Donald Soares (subscription required), Principal at Capgemini’s retail practice

“This is a remarkable two-day turnaround.”

– Uri Landesman (subscription required), Senior Portfolio Manager, ING Investment Management

“…. if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term, well then you are going to drive yourself insane.”

– Barry Ritholtz, The Big Picture in a post titled “‘This is a bullshit rally!'”

I have to say that the rally the last two days, and especially today’s record blowoff (chart), caught me off guard.  I didn’t think we’d see any big up moves until and unless 2nd quarter earnings started coming in strong.  It seems like all the worries about subprime mortgage backed security blow ups and agency ratings downgrades from Tuesday are long forgotten.

The ostensible reason was a pretty much in line chain store retail sales report.  An index of 50 major chain stores reported same store sales increases of 2.4% in June – from last year (subscription required).

Another reason was that alot of investors, including a lot of hedge funds, had gotten short recently and their covering today added juice to a market already heading up (subscription required).  (When you short a stock you sell it and hope to buy it back later and return it to it’s owner at a lower price.  When the stock goes up, it gets potentially more expensive to buy it back and so you might cover your position).  I think that’s a good explanation for the 100 point move from up 180 to up 280 we saw in the last hour and a half.

It’s been a fun ride the last 6 weeks (chart). 

First, there was the sell-off caused by sharply rising interest rates – and then the rally all the way back (1st 2 weeks of June). 

Then, there was the sell-off caused by the blowup of the two Bear Stearns hedge funds involved in subprime mortgage backed securities – and then the rally back last week in anticipation of 2nd quarter earnings. 

Then the downgrades of a bunch of subprime mortgage backed securities by Moody’s and S&P on Tuesday leading to a big sell-off. 

And now the rally to all-time records today (Thu).

Sure has been interesting.  Not sure what’s coming next.