Today's Market Update with...

William Ferguson, Value Line's Senior Industry Analyst

The bears were out in full force yesterday, as the Dow Jones Industrial Average eased another 119 points to end the day at 9,763. The other two major U.S. stock indexes, the NASDAQ and S&P 500, were also off sharply, retreating 56 and 21 points, respectively.

We can’t say that yesterday’s selloff took us by surprise, given the size of the market’s advance over the past eight months. The overheated equity market appeared to be ripe for some profit taking this week, especially given the growing unease amongst investors following the release of some mixed reports on the economy in recent days.

Yesterday’s Commerce Department report on new home sales, which showed that September home sales fell an unexpected 3.6% from August—the first retreat in five months, along with Tuesday’s weak report on consumer confidence, led to some jitters on Wall Street. We were also hit with news that GMAC Financial Services is in talks with the Treasury Department for a third bailout, another sign of some lingering troubles in the financial services industry. All this has investors questioning just how formidable the anticipated U.S. economic recovery will be, at least in the early stages. We continue to look for growth to slow in the final quarter of 2009. That said,

An economic recovery seems to be very much underway, as the nation’s GDP rose at an annual rate of 3.5% in the September quarter, the best showing in two years. Although the performance was underpinned by the now-ended cash-for-clunkers program and uneven recoveries on the consumer and industrial side, the reading does provide some hope that the worst recession in decades is now officially in the rearview mirror.

With less than a half hour to go before trading commences, the futures are pointing to a modestly higher opening for the market, primarily due to the better-than-expected report on the nation’s economy. Will this help the bulls stage a rally today? Stay tuned.