Daily Market Reports | Jun 20 2009
By Andrew Nelson
The Dow closed 15.9 points or 0.2% lower, while the S&P 500 was 0.3% higher and the Nasdaq surged 1.1%.
The Dow gave up its early gains and struggled to find a direction, posting its first negative week in five and only its third weekly loss since the March lows. Conversely, the Nasdaq surged through the course of the afternoon on the back of almost across the board strength in technology stocks, while financial stocks helped support the broader market. However, a decline in oil prices sparked selling in energy stocks, which in turn trimmed much of the upside.
It was at least an interesting session given the influence of the quadruple options expiration, or “quadruple witching”. This is a once a quarter event where stock index futures and options and individual stock futures and options all expire at the same time. Why it was so interesting this time around is because the event normally creates volatility in the underlying stocks, particularly toward the end of the session as traders jockey to sell or buy shares to deliver against previous bets using futures and options contracts.
And when the Dow ran up 50 points in 20 minutes at the beginning of the last hour, it looked like we might be in for a wild ride. But the late rally quickly sputtered and the Dow fizzled back into the red in the last 10 minutes or so of trade. Volumes were higher than recent session, but hardly as high as a normal quadruple witching day, while volatility remained pretty much non-existent. In fact, the CBOE Volatility Index, or VIX, dropped 8% on the day taking the read down to 27.58, well with the comfort band of the 20’s.
Financials, which had brought about much of the week’s declines on concern surrounding the White House’s plans to overhaul financial regulation, turned around late yesterday and carried the advance into today’s trade. Smart-phone makers Apple and Palm gained amid signs that more consumers are adopting higher-end phones after Apple’s new iPhone 3G S went on sale.
However, BlackBerry maker Research In Motion dropped 4.9% as investors worried that the company may find it tough to face up to the stiffer competition that Apple, Palm and others are offering. The company late yesterday reported higher quarterly earnings that topped estimates, what was higher revenue still missed estimates. Adding to its woes, the company also forecast current-quarter sales at the low end of forecasts.
Among the blue-chips in the tech sector, Dow components Hewlett-Packard and Microsoft also gained, with Microsoft pushing higher after Goldman Sachs added the software leader to its “conviction buy” list, according to reports.
One leadership group that was holding up again today was healthcare. CNBC notes that several HMO stocks posted impressive gains for the fourth straight day on continued hopes that President Obama’s significant health care reform proposals may either be dying, or moderating to the point that the industry doesn’t need to worry about it.
Conversely, falling commodity prices dragged on the underlying stocks, keeping blue chips wide in negative territory. Dow oil components Chevron and Exxon Mobil sagged in the wake of falling crude, while other Dow losers emerged across the spectrum of industries and included Boeing, Caterpillar, Procter & Gamble and Wal-Mart Stores.
Commodity prices pretty much finished near their lows for the day, with a rash of profit-taking in gasoline and crude oil prevalent. This was yet another fact that took the wind out of the market’s earlier sails. There was significant focus on crude-oil futures, which rose early on worries about Nigerian militants, who blew up a key pipeline in Africa’s biggest oil-producing country, but this was offset when the Energy Information Administration noted total petroleum demand fell 6% for the month, year-on-year.
Crude had been as high as US$72.30 earlier in the session. One of the things that had helped oil move higher earlier in the session was news from the World Bank, which raised its 2009 growth forecast for China, the world’s second largest consumer of oil. The report followed fast on the heels of a study cited by the Wall Street Journal that showed China’s oil demand increased in May for a second month. But it wasn’t enough and the July delivery crude contract, which is scheduled to expire on Monday, fell US$1.82 to US$68.55 a barrel, losing 3.3% on the week. This was the first time the current contract ended below US$70 since June 8. The August contract was also lower, down 2.6% to US$70.02.
The US dollar weakened after Moody’s warned California’s credit ratings could be looking at a “multi-notch” downgrade if the largest state economy in the country can’t agree on a budget soon. The comments follow on from a similar warning made by S&P earlier in the week, as the state continues to battle its current budget shortfall. The greenback was weaker against the Aussie, euro and the yen.
Gold pushed a little higher on the weaker dollar and in London, the base metals market was positive, if subdued. Once again the outsider, aluminium prices were 2.9% higher and closed at the day’s highs, making it the only metal in the complex to end the week higher compared to its starting point.
The SPI Overnight was unchanged.
