Daily Market Reports | Feb 28 2009
By Andrew Nelson
The Dow finished the day down 119 points or 1.7%, the S&P 500 Index fell 2.4% and the Nasdaq ended 1% lower.
It wasn’t a good day by any measure, but given overall fragile sentiment things could have been worse as the triple hit of an ugly GDP read, GE slashing its dividend and Citi putting out its hand again for Washington aid didn’t prove enough to start another mass exodus. After dropping from the opening bell, stocks managed to climb back to near break-even levels before an all too familiar decline in late afternoon trading ensued.
The Dow reached positive territory not once, but twice in the afternoon. Still, today marked the lowest close since May 1, 1997. The finish marked an11% drop for the week and the worst February for the Dow since 1933.
But investors were more interested in the fate of the S&P 500 Index and to find out whether the broader market gauge could stay above its bear market lows. The S&P closed at 752.44 on November 20, though the benchmark on Monday undercut that prior bear-market low. A finish above 740 to 750 would have been seen as a victory of sorts. But it didn’t happen. The S&P performed worse than the Dow and finished at 735, down almost 18 points, etching out a new low (and below technical support).
The Nasdaq fared better, staying above its November lows and continuing to be buoyed by the big tech stocks. Stocks like Intel, Research In Motion and Google managed to eke out small gains. Dell was the index’s good news story, jumping about 5% after investors shrugged off a steep loss to focus on the company’s ongoing efforts to trim costs.
For Citigroup, news of an expanded federal rescue erased a good chunk of what was left of the once major bank’s share value. The news in turn sparked a sell-off across the financial sector; another one. Citi unveiled a stock swap, that if successful, will leave the government owning more than a third of the company and wipe out nearly three-quarters of existing shareholders’ stake.
Sure, the deal will give the bank more capital, which ideally would pull it from insolvancy, but the government already gave Citigroup US$45 billion in exchange for preferred shares. Shares dropped almost 40% on the news and once again had the new n-word (nationalization) being heard echoing down the hallways of Wall Street. Shares of Citigroup have plunged around 90% over the year past.
General Electric shares fell 6.5% after the conglomerate said it planned to cut its quarterly dividend to US10c a share from US31c in a move that management hopes will save US$9 billion and preserve GE’s AAA credit ratings. The erstwhile broad economic bellwether has shed 75% of its market value over the year past and had been saying it would preserve the dividend. But no one really believed it, which is evidenced by the stock not falling much farther on the news.
Then there was the economic news that alone would have sent the market into mass panic mode in more normal times. US 4Q gross domestic product growth (GDP) shrank at its sharpest pace in 26 years. The US Commerce Department reported Q4 GDP had been revised to a decline at a 6.2% annual rate, the biggest fall in GDP since the first quarter of 1982.
In the original estimate last month, the US government had pencilled in a drop of 3.8%. The sharply lower revision to a decline of 6.2% reflects downward adjustments of inventory investment, exports and consumer spending.
The University of Michigan consumer sentiment index increased to 56.3 in February from an initially reported 56.2. The market thought it would drop to 56. Still, it was a three-month low, with consumers worried the recession may continue through the rest of the year. Other economic news was actually more positive, with the Chicago PMI, a regional reading on manufacturing, rising to 34.2 in February from 33.3 in January. The market was expecting to see a drop to 33, but it warrants noting that any number below 50 signals weakness in the sector.
Light crude oil for April delivery felt the GDP pain and gave up US46c to settle at US$44.76 a barrel on the New York Mercantile Exchange. Gold was thankfully a non-issue for the day, finishing just above US$943 and pretty darn close to where it started.
The US dollar gained against the euro but slid against a yen that otherwise had a pretty bad week. The Aussie didn’t have a good night at all, now sitting US1.5c lower at US63.9c.
With stocks in London finishing 2.2% lower and the LME tracking the declines, base metals had to lift from a pretty low level to track the slowly emerging optimism from early to mid-day trade in New York. Late LME trading saw metals revive a little, but Aluminium, Copper, Nickel and Zinc still finished well down, while tin and lead only were marginally lower.
The SPI was down 40 or 1.2%, which is certainly a harbinger of ill tidings for when Sydney opens on Monday.
