Daily Market Reports | Jan 17 2009
By Andrew Nelson
The Dow Jones industrial average ended the day 0.84% higher. The S&P 500 rose 0.76% and the Nasdaq was the big winner, finishing 1.16% higher. For the week, the Dow was down 5.6%, the S&P 500 lost 5.9%, while Nasdaq only gave up 3.02%.
It was a hurly burly Friday on Wall Street leading in to the long weekend. Stocks rallied in the morning, dropped in the afternoon and then rallied again to the close. Much of the volatility was due to increasing worries that whatever is being done to help Bank of America and Citigroup, which seems to be plenty, might still not be enough.
Late Thursday, a Senate measure to block the release of the second half of the bailout failed, giving the Treasury and President-elect Barack Obama access to the remaining US$350 billion.
No surprise then that it was the banking sector that hogged the spotlight throughout the session. A fresh US$20bn government capital injection for Bank of America to help absorb losses from recent acquisition Merrill Lynch only served to fuel concerns about the fate of the sector. It wasn’t too long ago that Bank of America was considered one of the safer and more solid bets, adamant as late as mid-September that it would need no government help to soak up Merrills.
The bank reported a whopping US$1.79bn 4Q loss and slashed its dividend, while Merrill Lynch said it had lost over US$15 billion in the fourth quarter. Bank of America shares ended 13% lower, putting a big drag on the Dow.
The problems for Citigroup also continued, with shares falling 8.6% on the day after meekly booking some morning gains. Again, the problem was government intervention, which is starting to spook investors when just a few short months ago the same news would have soothed investor confidence. The government moved to back US$400 billion of its assets.
Uncertainty was another issue the bank faced. We’ve known for a long time now that Citigroup probably wouldn’t survive the crisis in its current incarnation. This was confirmed by the sale of its core, Smith Barney broking business. But the bank took a big step down the restructuring path last night, advising Citigroup will split into two business units, with one made up of brokerage and retail asset management, local consumer finance and a special asset pool.
Add to that the fact that Citigroup also reported a US$8.29 billion quarterly loss, and it’s no wonder stocks landed 8.6% lower, In fact, it’s pretty miraculous that’s all they fell.
Lighting some of the gloom that hangs over the financial sector was news late in the day from Barclays. The UK global bank said it expected to report an FY08 profit result next month that will come in well ahead of expectations. After a day of mixed signals and even more mixed reaction, Barclays comments were what was needed to tip the focus to the positive side even though the bank’s stocks plummeted 25% in European trade before the announcement. Talk about mixed signals.
All up, the S&P financial index clawed back a lot of early destruction, ending the day down only 2.4%.
It doesn’t take a genius to see that more and more traders are beginning to mistrust these bailout rallies and ever newer artificial bottoms. There can be little surprise that people are becoming increasingly reluctant to buy into these moves until the stock market can build some momentum on something other than a report about new, amended, cut, tied-up or increased government intervention.
Good thing US markets are closed on Monday for the Martin Luther King holiday, because if the last few month have taught us anything, it’s that these various bailouts are almost always greeted with a positive reaction, but a few weeks later, when the honeymoon is over, everyone seems to wake up and realise we’re in an even bigger mess than we were before.
While it may be all we talk about sometimes, there’s more than just banks trading on the NYSE. Let’s not forget reporting season is heating up and companies are reporting on a period where business conditions have pretty much been the worst ever (or at least for as long as anyone alive can remember). The reactions to expected poor results haven’t been as bad as could have been feared. Talk about bad news being priced in.
Intel reported a 90% drop in fourth-quarter earnings Thursday night, but that nonetheless met forecasts. Shares of the chipmaker gained 2%. Meanwhile, McDonald’s gained 2.9% after its chief executive told CNBC the company expected to continue paying dividends. It takes little to impress these days.
However, highlighting the deteriorating economy, there was no let up in companies announcing job cuts. Advanced Micro Devices said it would cut 1,100 jobs, while The Wall Street Journal reported that drugmaker Pfizer plans to lay off as many as 2,400 sales staff. The worst of it came from Circuit City, with the bankrupt electronics retailer saying it plans to close its remaining stores and sell off its merchandise and say goodbye to 30,000 employees.
A bit of good news came from the University of Michigan consumer sentiment index, which rose to 61.9 from 60.1. It was expected to dip to 59. There’s still some hope out there.
In a market that ended in the green, something had to go up, and the sector that took one of the honoured positions of supporter of the index was Energy. Most stocks in the sector advanced, tracking a much hoped for rebound in the price of oil and gaining momentum short covering, as the day saw options expire. By the close, light crude oil for February delivery rose US83c to US$36.23 a barrel on the New York Mercantile Exchange despite a gloomy demand outlook.
The US dollar fell versus the euro and Aussie, but gained against the yen. This provided some support for gold, seeing COMEX gold for February delivery rise US$32.60 to US$839.90 an ounce.
Base metals ended mixed during what was a volatile Friday session on the LME. Copper and nickel led the pack higher early on the back of short covering by the funds, reports basemetals.com. Also helping was news of a big output cut from Chile’s Escondida, the world’s largest copper mine. The news prompted a price spike above US$3,400 a tonne around midday.
However, as the group leader copper petered out, it left the market vulnerable to a negative swing back to preoccupations with ample inventories and weak demand. Still, Copper finished better than two percent higher, while most of the other base metals only shed small amounts.
