Daily Market Reports | Feb 14 2009
By Andrew Nelson
Stocks ended lower on Wall Street on Friday as investors considered the US House of Representatives passage of the US$787bn economic stimulus plan and geared up for the Senate’s vote tonight. News of the passage was greeted with an initial 60 point drop on the Dow in the mid-afternoon before the gauge clawed back the loss only to drop again in the last 10 minutes of trade, closing at near intraday lows.
Earlier in the day, the Dow oscillated between positive to negative and was marked by a mid-morning rally that saw the Dow run 60 points after the White House said President Obama will outline a foreclosure plan on Wednesday, but there were few details. In the end, the indecision about the stimulus plan and a continued stream of poor economic data was more than the market could overcome.
The Dow Jones industrial average ended up closing 82 points, or just over 1% lower, seeing it finish below 8,000 for the fourth session in a row. All but three of its 30 stocks declined. The S&P 500 was also down 1%, while the Nasdaq ended 0.5% lower after spending a good part of the day in the black.
Market breadth was negative and volume was pretty light ahead of the long holiday weekend. All US financial markets are closed on Monday for Presidents Day.
The Reuters/University of Michigan consumer sentiment index, out in the morning, showed a bigger fall than expected, sliding to 58.2 from 61.2 in January. That news, coupled with the continued lacklustre run of corporate results, made it difficult for markets to find any solid footing to rise from.
Bank stocks provided much of the downward pressure on the broader market,with a 5.7% decline in JP Morgan Chase setting the pace for the sector. Energy companies and industrial shares helped offset some of the banking sector’s declines, but the help was far from enough.
The financials hit the skids early after British banking company Lloyds Banking Group said that it would take a big loss in its HBOS business. US shares in the UK giant tumbled 30% and pulled US lenders lower with it. Bank of America and Wells Fargo, which reported late on Thursday its fourth-quarter loss would be deeper than originally reported, declined 5.1% and 6.2%, respectively.
But it wasn’t really a day about stocks, it was much more a day about philosophical beliefs. Is government intervention good? Will the stimulus package actually help, or will it eventually come back and kick us in the behind? Optimism about the home loan plan was a definite feature of the day, but more so was indecision, then fear, then optimism, then fear again when it came to the passage of the stimulus package.
One thing’s for sure, the rules of the game are changing on a daily basis and investors seem reluctant to take any sort of long-term position on stocks. And that seemed to be the problem with the passage of the bill. What should have been perceived as good news was actually taken as bad, given much of the spending is scheduled so far into the future that it wont give the short-term economic boost that is hoped for.
Oil futures rebounded 10% after a five-session slump as investors looked to buy the benchmark contract after five consecutive sessions of declines that had sent oil to a two-month low. Short covering had a lot to do with the rise, as investors who had been shorting the March contract were also buying back the contract to cover their short positions before the contract expires
Crude for March delivery (expiration of the contract is on February 20) ended up US$3.53, or 10.4%, at US$37.51 a barrel on the New York Mercantile Exchange, but still ended this week down 6.6%.
As investors moved their positions to crude, gold prices slid for the first time in four days. COMEX gold for April delivery fell US$7 to settle at US$942.20 an ounce, still unable to break though stubborn resistance at around US$950. The slide in gold came despite the US dollar falling against the euro. The greenback did rise against the yen though as market speculation has it the Japanese government is willing to draw a line in the sand as far as yen strength is concerned. (The strong currency is killing Japanese exporters).
Base metals were much of a muchness, basically stuck in a tight range that had a slight upward skew. Even metals buyers in London were on the sideline, waiting for and digesting the same policy and stimulus news out of Washington. Copper and aluminium were pretty much flat, but lead and tin posted strong performances amid technical tightness. Zinc and steel booked small losses, while nickel ended a little higher.
European markets ended mostly higher, as did Asian markets yesterday.
This was despite another batch of horrific economic data from the old continent. The European Union’s statistics office released Q4 GDP data revealing the economy of the 16 countries sharing the euro currency shrank by 1.5% in the three months to December. On an annualised basis, this would mean a contraction of 6%, which would be significantly deeper than the 3.8% annual rate of decline for the American economy in the same period.
Germany, Europe’s biggest economy, suffered the most with its GDP figure shrinking by 2.1% in the quarter, marking the worst quarterly performance since 1990. Neighbour France contracted by 1.2, while Italy’s output declined by 1.8%.
In an effort to address the economy’s slide, the German Parliament approved its own stimulus plan overnight.
