I hate to say it, but one 1,000-point up day on the Dow does not a recovery make. Wall Street and Main Street are still in a state of semishock, and while the Treasury Department may be throwing money at banks this week, the overall influence on the market isn't apparent yet.
Let's look at Main Street first: Reports on monthly retail sales are normally dull, unless they're scary.
In September, they were scary. Sales fell 1.2 percent, the worst drop in three years. Absolutely dismal auto sales led the drop, but spending now looks weak broadly across the economy (remember that consumer spending makes up a whopping 70 percent of the economy). A halt in spending isn't exactly surprising, given all the fear out there, plus the fact that median American household incomes could actually fall by 2010, according to the New York Times .
As for Wall Street, big investors are the most down-in-the-mouth ever in Merrill Lynch's monthly Fund Managers' Survey .
Institutional fund managers believe that the world is in recession, that monetary policy is too restrictive, and that companies should use what cash flow they have to rebuild balance sheets. Over the past month, fund managers have lost faith in global growth, commodities, China's economy and emerging markets. By historical standards, a lot of bad news is now in the price, although the fragility of the financial system means that history may be a less reliable guide than usual.
Still, Merrill notes that all that fear tends to be associated with a market rally and says that in this survey, extreme pessimism coupled with extremely high levels of cash and a jump in the number of managers (43 percent) who see equities as undervalued may mean that all markets are waiting for is the right catalyst to jump back in.
Like a bank bailout? Or buying bad mortgage loans? Massive global rate cuts, maybe? We're still waiting, and as the crisis among banks, lenders, and regulators starts to sort itself out, the rest of the economy has weakened.
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