Daily Market Reports | Dec 10 2008
By Greg Peel
The Dow closed down 242 points or 2.7% while the S&P lost 2.3% and the Nasdaq 1.6%.
As we get closer to Christmas this market, which has been historically turbulent for over a year, is beginning to look a bit more “normal”. The moves are still in triple digits, but on Monday the Dow did nothing but go up – never crossing the flat line or wavering significantly from its path – and last night it went down in a similar fashion. At its low the Dow was down 283 and picked up a tad at the close.
Volume was pitiful. As we approach the end of the quarter, and what for most US companies is year-end, there is bound to be more turbulence ahead. There will be window-dressing from investment funds, tax-loss selling, and when we enter the new year there will be another redemption window open. But in the meantime, Wall Street is either war-weary or largely indifferent and as such, the market is settling down a bit to more recognisable activity. The VIX volatility index is now under 60, and although anything in the 30s was once thought volatile, we’ve been to the 80s and now the 50s seem like a dawdle.
After a positive session on Monday sparked by the announcement of Obama’s infrastructure package, last night saw some dour earnings guidance updates from the likes of FedEx and others that once again took the gloss off the excitement of Santa’s rally and encouraged profit-taking. Shares reversed, commodities reversed, but in the scheme of the past few months it was really just a quiet day and no reason to feel spooked.
Oil gave back US$1.62 to US$42.09/bbl and copper gave back 4% after Monday’s 7% surge, while the rest of the base metals were unremarkable.
Gold added another US$3.30 to US$775.40/oz, while the Aussie gave back a cent to US$0.6563.
The SPI Overnight fell 26 points.
If there was one highlight of last night’s session it was in the fixed interest market. For the first time in the history of mankind, the US one month T-bill traded at a yield of 0.00%. This is the money market equivalent of putting cash under the mattress. While zero seems like an obvious support level, traders see no reason why the yield could not continue to fall into negative numbers.
What that means is that large investors (pension funds, foreign central banks, sovereign wealth funds?) in particular are happy to actually pay money in nominal terms for the US government to guarantee that money’s survival. In real terms yields have been negative for some months, given inflation is still 3% or so. A zero yield is indicative of simple risk aversion. This money has to go somewhere, and right now safety is much preferred over return. This is not a positive sign for the stock market and goes some way to explaining low volumes. No one wants to play.
At least no one wants to play for a month. Maybe next month things will be different. A zero one-month does not preclude Santa’s rally, but until the fear of risk begins to ease there can be no substantial rally – substantial meaning supported by volume and thus commitment. There can still be a rapid rally of significant magnitude, but one that is shaky. Hence we will likely continue to have these big ups and big downs through to the new year.
