Daily Market Reports | Jan 15 2009
By Andrew Nelson
The Dow made it five down days in a row, losing 2.9%. The S&P500 finished 3.3% lower and the Nasdaq dropped 3.7%.
Stocks dropped in New York last night after poor trade and retail data and more bad news for the banking sector fuelled fears of not only a prolonged recession, but also the possibility the economy could be headed toward a deflationary spiral. All sectors dropped and volatility was king, with the VIX shooting 14% higher after this latest rout had many thinking the market could retest and possibly even break through long-held support levels.
The retreat started in bank stocks and ears pricked up in early trade after Morgan Stanley analysts forecast HSBC, Europe’s biggest bank, is likely to halve its dividend and may need to raise up to US$30 billion of capital. A follow up from Deutsche Bank added fuel to the fire after the big German said it lost more than US$6 billion last quarter.
Investors also remained firm in their dislike of the news that Citigroup is selling a majority stake in its brokerage unit to Morgan Stanley. Many see the move as indicating the beginning of the break-up of the troubled banking firm. In the end, shares tumbled more than 22% as the market worried whether the bank could ever be profitable, or function effectively again after it unwinds its business model of being a “financial supermarket”. The bank is expected to post a multi billion-dollar loss later this week.
All up, the S&P financials index dropped more than 5% on the day and since the start of the year, the index has managed only two positive days.
A poor run of economic data also had its way with the market, with the US Commerce Department reporting sales at US retailers had fallen a much greater than expected (and prayed for) 2.7% in December as the economic slowdown saw consumers reduce their retail spending drastically over the crucial holiday selling period. Sales excluding volatile autos fell 3.1% versus forecasts for a drop of 1.4%. On top of that, the retail sales index, a morning report from the government, showed that business inventories had fallen 0.7% in November after falling 0.6% in the previous month.
Adding to the general concerns surrounding the sector was news that regional department store chain Gottschalks had filed for bankruptcy protection and clothing chain Goody’s said it will liquidate its remaining 282 stores as it returns to bankruptcy. By the end of the day, the S&P retail index had fallen around 3%. Not good news when consumer spending accounts for about two-thirds of the nation’s economic activity and is the main factor underpinning corporate profits.
Investors got another economic kick in the pants in the afternoon with release of the Federal Reserve’s semi-annual Beige Book reading on the economy. The Beige Book showed deterioration had continued apace over the last six weeks across pretty much the whole country. Most districts reported that lay-offs continued and that’s without a substantial number of job reductions in the financial sector that have yet to show up in the statistics.
Evidence supporting the ever growing fears of a prolonged slowdown also showed up in the government’s trade numbers, which showed that both exports and imports in the US had slowed sharply from July to November.
On the corporate front, both commodities and industrial stocks continued to show signs of weakness. Aluminium maker Alcoa tumbled more than 5% after Monday’s dismal quarterly numbers, while General Electric also gave up more than 5%.
The market also kept a concerned eye on the possibilities surrounding existing government stimulus as well as the implications for any new funds pledged. The big question is when will the government release the second phase of its promised US$750 billion in aid to troubled banks? Other concerns stem from what conditions might be attached, especially possible restrictions on deal making.
Energy shares also tumbled, taking oil’s lead after US crude fell nearly 1.4% percent on rising inventories and weakening demand. Light crude oil for February delivery fell US43c to $37.37 a barrel, erasing earlier larger losses following the release of the US government’s weekly oil inventories report. Exxon Mobil and Chevron were among the Dow’s biggest drags, falling 3.6% and 3% respectively.
COMEX gold for February delivery fell US$11.90 to US$808.60 an ounce.
The US dollar gained against the Aussie and versus the euro, but fell against the yen.
