Daily Market Reports | Jan 13 2009
By Andrew Nelson
Dow down 1.46%, the S&P 500 lost 2.27%, while the Nasdaq finished 2.1% lower as tech stocks succumbed to the selling.
US investors started this week the same way they finished the last one, selling stocks and pushing down prices seeing Wall Street book one of its worst slides in more than a month. Concerns about Citigroup’s potential deal with Morgan Stanley came to the fore, which was bad news for that stock, while the looming start of the fourth-quarter reporting season also had investors on the back foot.
Financial and commodities-related stocks bore the brunt of the selling and there’s little good news for the financial sector going forward. Citigroup bore the brunt of the selling, falling more than 17% on news it is working to sell a controlling stake in its Smith Barney brokerage to Morgan Stanley as a last ditch means of raising some much needed cash. Shares of Morgan Stanley fared better, but still couldn’t manage a positive close, ending 1.4% lower.
Considerable speculation surrounds the deal
A variety of other financial shares followed suit, with Bank of America a frontrunner in the race for the some of the biggest losses, ending 12% lower. A Thomson Reuters survey is now predicting that the financial component of the S&P 500 may see a decline of 15% in fourth-quarter earnings.
President-elect Barack Obama offered little help, with investors concerned about his pledge to place much stricter conditions on financial firms receiving taxpayer money under the Troubled Asset Relief Program. While it’s true that credit conditions have improved for banks since the plan was first rolled out, there are still concerns that much of the recent repair could disappear as soon as the money is gone.
Anxiety about the upcoming reporting season was also a factor, with shares in Alcoa falling almost 7% ahead of its quarterly results, due after the close. Alcoa, which is traditionally the first cab off the rank in the US reporting season was expected to report a loss of 5c per share after earning 36c a year ago. The S&P 500’s basic-materials group is forecast to see fourth-quarter profits fall by 69%, the most of any sector, according to Thomson Reuters. Reflecting this sentiment ahead of the report, Deutsche Securities downgraded the stock to Sell earlier in the day.
US Steel fell 13%, fertilizer maker Mosaic shed 11% and Deere, the maker of agricultural equipment, was down nearly 10%. Chevron warned last week that its bottom line will take a hit from oil’s drop and its shares were off by almost 3%. Rival Exxon Mobil slid 1.3% and oilfield-services company Schlumberger was down nearly 4%.
Another sector facing a big drop in earnings is consumer discretionary products, with the S&P 500 end of this sector expected to book a decline of 56% in fourth-quarter earnings.
All up, fourth-quarter earnings are expected to be pretty poor across the board, with companies struggling amid the recession. It will be a question of how much more will you lose, rather than how much have you lost, for a great number of US companies reporting over the next few weeks. Analysts are apparently expecting a drop of more than 15% in aggregate fourth-quarter earnings across the entire S&P 500, according to the Wall Street Journal. This would be the sixth straight quarter of falling S&P profits, the paper reports.
It wasn’t all bad news though, with Abbott Laboratories making an increasingly rare corporate actions announcement, saying it is buying Advanced Medical Optics for US$1.36bn plus debt to expand its eye-care offerings, including laser vision care. Advanced Medical Optics shares gained 143%.
US light crude oil for February delivery fell $3.24 to settle at $37.59 a barrel on the New York Mercantile Exchange. The slide marks more than a 23% decline over the last five trading days.
Asian and European markets fared little better last night and yesterday and while banks may have fared better in Europe, losses in commodity and energy stocks ensured the negative slide.
The US dollar eased versus the yen, but it gained against the euro and the Aussie dollar.
The move in the USD wasn’t very good news for the gold price, with COMEX gold for February delivery dropping US$34 to US$821 an ounce. Copper took a big hit too (4%), with smaller losses for other base metals.
