Daily Market Reports | Mar 21 2009
By Andrew Nelson
The Dow lost 122 points or 1.6% while the S&P gave up 2% and the Nasdaq finished 1.8% lower.
Last night on Wall Street was pretty much the same as the day before. Investors backed out of financial shares and profit taking featured heavily again. Not helping matters was the fact the day was a quadruple witching day, with stock index futures and options, plus individual stock futures and options all expiring at the same time. Such a day generally leads to extra volatility in the prices of the underlying stocks.
Stocks had see-sawed through the morning as investors mulled an absence of much news at the end of a busy week. Then the market took a downward swing in the afternoon, with banks, materials and technology stocks leading the declines. But not to worry, as it looks like it was just profit taking off the recent rally and given stocks were up so sharply in the week leading up, something had to be given back.
Notwithstanding this session’s drop, the benchmark S&P 500 posted its best 2-week run-up since 1974, when it rose 15.95%. The market posted its first string of consecutive positive weeks in nearly a year.
Banks were pressured by some sobering comments about bank failures from Federal Deposit Insurance Corp Chairman Sheila Bair. The agency will levy a substantial special charge on banks to replenish its deposit-insurance fund. She also repeated her belief that the FDIC would end up losing about US$65bn over the next five years because of bank failures. As you can imagine, this did little to help confidence in the sector.
American Express was at the front of the loser’s queue, dropping 6.6%. Analysts at Friedman, Billings, Ramsey said the company may post a loss in 2009 and 2010. The analysts said the bank will suffer in the face of growing unemployment levels and rising credit card defaults, while they also predicted the company may have to slash its dividend.
The sector was also hit by news institutions had only applied for 2.5% of the US$200 billion the Federal Reserve pledged to loan through TALF. At the same time investors were looking for more details from the Treasury Department’s latest stabilization plan for the sector and are still busy digesting the implications of the Federal Reserve’s plan to buy more mortgage securities and US$300bn in longer-term Treasuries.
Elsewhere in the sector, AIG remained in the limelight, falling 23% after the House of Representatives voted yesterday to impose a steep tax on large employee bonuses at firms that accepted government bailout money. Citi also ended well lower, although it was still more than double its March low, after the bank advised its Chief Financial Officer Gary Crittenden will be chairman of the group it created for its non-core assets.
General Electric added a lot of pressure to the Dow, falling 8% after analysts at Credit Suisse trimmed their earnings projections for the conglomerate just a day after the company’s briefing on its financing unit.
Fed Chairman Ben Bernanke was busy with a speech to a community bankers’ conference. He discussed some of the possible regulatory reforms, saying he’s been pleased at the market’s response so far to the Fed’s new lending programs. He added that the central bank will quickly reverse course whenever the economy recovers, to prevent a bout of serious inflation. When the plan was laid out earlier this week, bond yields fell, pushing the US dollar sharply lower against the yen and the euro on fears the moves could stoke future inflation.
The US Dollar Index, which measures the greenback’s value against a basket of six overseas currencies, was down about 4% for the week. However, the USD measure enjoyed at least a partial rebound on Friday, rising about 1%, with the US dollar gaining on the euro and the yen. The Aussie was little changed at US$0.6858.
Gold futures fell slightly after rallying nearly 8% in the previous session, with the rebound in the US dollar reducing the metal’s investment appeal, at least for the day. Oil was also a victim of the stronger USD, with crude for April delivery ending the day down US55c at US$51.06 a barrel after zig-zagging through the session. Last night marked the expiry of the April delivery contract. The May contract closed up US3c to US$52.07/bbl.
Separately, the US government reported that there were 2,769 “mass” layoffs in February, resulting in 295,477 job cuts. A mass layoff involves 50 or more job cuts at the same time. In January, there were only 2,227 mass layoffs.
In London, base metals were unable to push beyond their early morning peaks, turning mostly lower in the face of expected profit-taking and end-week booksquaring in the wake of this week’s substantial, across the board price gains. Copper, aluminium, lead and zinc all jumped to fresh rally peaks, but the latest LME inventory data triggered a trend reversal, with news of large and unexpected stock increases in copper dampening hopes of a recovery in demand.
In Sydney, the SPI Futures Index was down 10 points at 3477.
