Big Money Isn’t Buying the Rally

The rally is hesitating early Tuesday after a week of huge gains and a report the Standard & Poor’s/Case-Shiller index showed U.S. home prices fell 11.4% in January, the steepest drop since 1987.

Also, the 10 a.m. ET consumer confidence report was much weaker than expected, falling to its lowest level in five years while expectations for the future fell to the lowest level since 1973.

While it’s pretty clear the market put in a significant technical bottom in recent weeks, the reality is the S&P 500 remains within its longstanding 1,270-1,400 trading range and there’s much debate over the sustainability of the rally.

“I’m feeling a lot better than I have in a long time,” Bob Doll of BlackRock, which has over a $1 trillion of assets, said on CNBC Tuesday morning. “I know they don’t ring a bell at the bottom, but I think I hear a bell ringing. I’m not making the case it’s a V-bottom, but I do think an important low occurred [last] Monday following an important low in January.”

Diane Garnick of Invesco, which has over $500 billion of assets under management, takes a more somber view. While sentiment has improved, it’s up from extremely low levels, she notes.

In the accompanying video, Garnick also makes the case it’s too soon to invest in the financials on a fundamental basis, even though the group has been the hottest trade of the past week.

To that point, Goldman Sachs this morning posted a note suggesting the financial community is only halfway done with its writedowns. Meanwhile, JPMorgan cut its 2008 profit estimate for Merrill Lynch by 45% and Friedman, Billings, Ramsey downgraded Capital One Financial, saying the recent rally has made the stock unattractive.
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