It has been a market of stocks rather than a stock market of late. Okay, so that phrase is a bit shopworn, but the tale of the tape shows the market has had somewhat of a split personality for much of the year.

Blue chips have struggled recently, surrendering much of their gains from the March lows. The more economically sensitive small caps, too, have retreated, but they rose much more off of their bottom and they’re much closer to their former highs. Of the two groups, the small caps have the better track record as a bellwether of what we can expect going forward.

Among the market’s various sectors, by far the worst performing have been financials. The broker/dealers had been headline grabbers, with Lehman Brothers stock tanking, even after the company was forced to return to the capital market to bolster their balance sheet.

Now the regional banks have been put under the microscope. And the feeling is we’ll see plenty more losses when the quarterly numbers come out. If so, that means there will be additional capital raising to follow.Read more...

This morning we were treated to an inflation reading the likes of which hasn’t been seen since the early 1970s: Wholesale prices rose 3.2 percent in November. When we first saw the headline we thought it was an annualized figure, rather than simply the monthly increase. Unfortunately, that wasn’t the case. The Producer Price Index (PPI) truly did increase by that much last month—its biggest monthly increase since August 1973.

Energy and food deserve much of the blame, but higher import prices (due to the weak dollar) also took their toll. It’s a safe bet that none of these problem areas will be resolved anytime soon.

The stock market didn’t take the news so well, as investors fear the Federal Reserve won’t be so quick to lower interest rates going forward. The PPI report further underscores the dilemma the Fed faces between preventing the economy from sliding into recession and keeping prices in check.

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