Daily Market Reports | Mar 04 2009
By Greg Peel
The Dow fell 37 points or 0.5% to close at 6726, the S&P fell 0.6% to close at 696, and the Nasdaq fell 0.1%.
There has been a lot of interest generated around the milestone passed in Monday’s trade in the US – that of the market breaching a twelve-year low (in the S&P 500 – the Dow had already done so). What is the significance of twelve years?
Well for the tea-leaf types, there are twelve signs of the zodiac, or twelve months in the year; there are twelve in a jury and in a carton of eggs; there used to be twelve pennies in a shilling – it is clear that for some reason, the number twelve has an importance to human beings. But in terms of stock markets, the significance of twelve is a little less esoteric.
As this particular financial crsis has continued to deepen, we have long ago left any comparisons with the mild recession of 2002, have looked through the last real recession of 1992, and have focused more on the lengthy recession of the seventies and, more ominously, the Great Depression. Well may these two periods be pertinant, for they are the only other times in history in which the US stock market has retraced twelve years of gains. A twelve year low was breached in 1974, and in 1932.
Well that’s settled then – we’re screwed.
Actually no. When the market hit a twelve-year low in 1932, three months later it had seen the bottom. When the same thing occurred in 1974, that was the bottom. In both cases, the “bottom” of the recession/depression was another nine months away.
Apropos of nothing in particular then, Wall Street once again opened weak last night, plunging 120 points from kick-off, if for no other reason as there does not seem any cause to buy at present. There were some weak economic data nevertheless – January pending home sales fell 7.7% when 3.5% was expected – but such data is beyond surprise anymore. The Dow fell to 6705 and the S&P fell under the technical level at 700, to 692. But then the buyers came in.
The buyers then took over the floor, reversing the Dow to be up 100 points for the day. The buyers got as far as 3pm before the usual selling took over again, ensuring the negative close. The S&P closed at 696.
Why the buying? Well there were a lot of officials talking today. Treasury Secretary Geithner faced a House committee, to sell the budget, but that was uneventful. Fed Chairman Bernanke had spoken earlier, warning that the economic grief will last for a while yet but announcing US$200bn of TALF money was being put into play. This is the fund instigated by the former administration and picked up by the new one, intended to bolster lending at the consumer and small business level. And President Obama had a go too, suggesting in a press conference that stocks were looking cheap, and that long term investment from here looked like a sensible strategy.
As one wag journo later asked the Press Secretary, is Obama now First Stockbroker?
There was also a comment made by someone at the Peoples’ Bank of China that Chinese economic growth would be more like 8% in 2009 (compared to estimations of more like 6%), but you can take that with a grain of salt. Base metal prices in London were nevertheless higher, with copper and tin jumping 4% and zinc 2%, but this was attributed to inventory data not being quite as bad as expected. The US materials sector did, however, attempt a rally last night.
The most likely reason for the buying spurt on Wall Street last night is that everyone’s just a bit sick of selling, but with technical levels breached and twelve-year scenarios being thrown up one could be forgiven for thinking perhaps some brave bottom-pickers have their fingers out again. It has not been a good twelve months for bottom-pickers. March, nevertheless, typically sees a flat run before a reversal, and in recent years a bottoming run before a rally (See Rudi’s Weekly Insights).
After falling 10% on Monday, oil bounced 3% last night, rising US$1.28 to US$41.43/bbl. Oil closed when Wall Street was at its highs, but a weaker US dollar (for once) assisted.
The greenback did not assist gold, which continued its track back to US$900, falling US$8.80 to US$916.10/oz. A weaker greenback was good for the Aussie, but the real story behind a one cent recovery to US$0.6416 in the last 24 hours was the lack of RBA rate cut, which surprised everyone bar FNArena and 18% of economists polled earlier by Sky Business. (To be fair, the trade balance data did change a few minds before the jump).
The SPI Overnight lost 25 points.
