Daily Market Reports | Dec 20 2008
By Andrew Nelson
The Dow ended down 25 points or 0.3%, while the S&P500 finished 0.3% higher and the Nasdaq closed up 0.8%. So the last full trading week of the year saw the S&P finish up 0.9%, its second consecutive weekly gain. The Dow ended the week 0.6% lower, but the Nasdaq was 1.5% stronger.
Markets finished mixed in New York last night after a short-winded morning rally petered out by the afternoon leaving investors to ponder the White House’s plan to rescue the auto industry. US$17.4 billion was stumped up to rescue Detroit’s major car makers in hopes that it will stave off bankruptcy for now.
It was this auto plan, which comes on the heels of Congress’s recent refusal to create a separate program for Detroit’s troubled Big Three, that provided the early boost after Friday’s opening bell. The package represents the final splurge from the first half of the US$700 billion Troubled Asset Relief Program (TARP) that was originally intended to bolster troubled Wall Street firms and lend liquidity to credit markets.
But as the day wore on, volatility became the name of the game, with major indices swinging between gains and losses through much of the session. After the initial bump provided by news of the bail the levels of optimism quickly began to fade as investors digested terms of the bailout that gives very little time to repair their problems.
The deal is conditional on the companies being able to demonstrate and maintain financial viability by March. Being funded under TARP, the deal also tracks most of the key provisions of the bailout legislation that failed to pass Congress earlier this month, but it is somewhat more lenient in judging the companies’ health.
Nonetheless, General Motors rallied 22.7% on the news of its new temporary lifeline under the TARP. Gains for Ford were a little more muted, with the stock closing only 3.9% higher, as the company was already on the record saying it did not require cash immediately.
Shares of automakers were otherwise mixed, with Volkswagen tumbling 8% and both Toyota and Nissan both declining slightly, while Honda booked a modest rise. Auto suppliers were generally higher on the news, which will at least prolong life for a few more months.
Volatility, or the surprising lack thereof, and volumes, which were higher than through much of this week, were a major feature of the day. Friday saw the convergence known as quadruple witching, in which settlement and expiration of four different types of futures and options contracts happen in a two-day period.
Quadruple witching days are notorious for big spikes in volatility, but this was certainly not the case last night. The Chicago Board Options Exchange Volatility Index, or VIX, certainly our favourite fear gauge, fell 5.09% to end at 44.93, its lowest level since October.
Volume was slightly higher than it was through much of this week, as many traders scrambled to settle trades on expiring options contracts. About 1.8 billion shares changed hands, just ahead of the full-day average so far this year.
Bank stock came under renewed pressure, with S&P downgrading 12 major US and European banks. The credit house, which is the cause of a large part of the problems these banks are having, cited ongoing problems within the industry as troubles deepen around the globe. S&P flagged the prospect for a continuation of lower profitability and significantly higher loan losses in the medium term.
The technology sector was among the better-performing on Friday, helped by well-received results from Oracle and Research in Motion after posting better-than-expected third-quarter results after the close on Thursday.
Energy stocks saw heavy selling pressure as the price of US crude oil sank some more, making it six straight down days. Despite OPEC’s decision earlier this week to cut output, oil prices have continued to fall on the belief that disappearing demand will be a more powerful market force.
Light, sweet crude for January delivery fell US$2.35 to settle at US$33.87 a barrel on the New York Mercantile Exchange. Contracts for later delivery actually traded higher and the spread between January and February contracts was almost US$10 a barrel. This is an unusual gap that reflects current weak demand.
The US dollar was mixed against major rivals, but resumed its normal course against the Aussie, which was 0.1c weaker at US$0.686.
Unfortunately, base metals were caught up in oil’s poor performance and a bouncing US dollar, with losses booked right across the complex. Lead and copper lead the way lower, dropping more than 9% and 6% respectively in London trade. Precious metals fared little better in the US, with silver falling 3.4% and gold down 1.5%.
In a sign of good Christmas cheer, the SPI Overnight added on 11 points.
