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Today's Market Update with...

William Ferguson, Value Line's Senior Industry Analyst

October 27, 2009 - 9:10 AM ET

The stock market did an about face yesterday, as early gains and then some quickly dissipated by midday. All told, the Dow Jones Industrial Average ended the trading session down 104 points, at 9,868. The other major U.S. indexes, the NASDAQ and S&P 500, followed suit with each falling 13 points by the market’s close. It marked the fourth time in the last five trading days that declines led advances, yesterday to the tune of three to one.

The main culprit behind Monday’s setback was the continued impact of the strengthening value of the dollar on commodity (particularly energy) and basic materials stocks. The price of crude oil on the New York Mercantile Exchange fell $1.60, to end the day at $78.90 a barrel. The commodity traded above $80.00 for most of last week and so far this morning looks like it may be headed toward that mark again.

We also believe that part of the latest selloff can be attributed to investors taking some profits in what looks to be a much overheated equity market right now. We have warned investors here over the last few weeks that such a scenario might play itself out in the near term. Will it continue today? The stock futures, which are little changed ahead of some important data today, offer minimal insight right now as to which direction the market might take when it opens less than one hour from now.

This morning the attention of many will turn toward the economy, as we will receive the latest report on consumer confidence. This reading will likely provide some insight into what might be in store for the retailers as the crucial holiday shopping season rapidly approaches. Consumer strength is considered vital to any recovery, as consumer spending accounts for more than two-thirds of all economic activity. The tone of the report may also provide a glimpse of how strong the U.S. economic recovery may be in the months ahead. This comes ahead of the much anticipated release of third-quarter GDP data on Thursday.

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