Daily Market Reports | Sep 15 2009
By Greg Peel
The Dow closed up 21 points or 0.2%, but the S&P was more robust with a 0.6% gain to 1049 and the Nasdaq added 0.5%.
On this day a year ago, the S&P 500 closed at 1192 after a huge fall sparked by Lehman Bros filing for bankruptcy. Last night after an initial drop, Wall Street continued its theme of last week by grinding its way higher to a positive close. At 1049, the S&P is down only 12% in twelve months having been down 44% between September 15 and March 9. Earlier on in the rally, a popular upside target for the S&P was 1050-1060. There will thus be work to do to breach this range, although many an analyst has upgraded the target to 1100 in the meantime.
This time last year, the VIX volatility index was in the thirties. Previously anything between 30-40 was considered an indication of capitulation and the peak of fear, thus predicting a coming trough in the S&P. But last September the fall of Lehman sparked a volatility jump that saw the VIX pass through 80 in the next two months, so desperate was the demand for put option protection from Armageddon.
On the flipside, a VIX reading below 20 has previously been a good indicator of complacency and a coming peak. In the past month, the VIX has drifted down from 28 – the point at which a pull-back in the stock market looked on the cards – to close at 23 last night. The 52-week intraday range on the VIX is 22-89, with 22 being posted in July when the rally was under full steam. Were the VIX to fall below 22 shortly it would represent its lowest level since the GFC hit in earnest.
Wall Street opened lower last night – Dow down 70 – but the open was the low and the close was the high. A weak start was driven by weakness in Asia yesterday, much of which was attributed to excitable fears of a “trade war” between China and the US as Washington moved to impose duties on Chinese tyre imports. There remain surprising hints of a protectionist attitude within the Obama Administration which makes Wall Street very uneasy.
But all was quickly forgotten, particularly given a press report that China’s sovereign wealth fund was in talks with US power company AES about taking a stake. (You block our exports – we buy your companies).
This deal is the latest to highlight rising M&A activity in the US, a factor which is helping to push the indices higher. Industry consolidation is a common theme following any recession, casting out the dead wood as money moves “from weak hands to strong”. Last night Deutsche Telekom announced it was considering a bid for US rival Sprint Nextel. Meanwhile Cadbury voiced its intentions to reject the bid from Kraft. Stock markets love a good bidding war.
There were no economic data releases last night to cause any grief, although the recent theme has been largely to ignore any poor readings and embrace the good ones. But if Wall Street does intend to push ever higher from here, it’s not getting any help from commodity prices right at the moment.
The supposed trade row between China and the US helped commodity prices ease lower last night, following earlier weakness last week. Oil fell US43c to US$68.86/bbl while base metals similarly posted falls of around or below 1%. Lead was an exception after its weak previous week, clawing back 2%.
There was little movement in the US dollar index – it finished at 76.68 – to drive commodities one way or the other, and subsequently the Aussie was also little moved over 24 hours at US$0.8619.
Having marked at close above US$1000 on Friday night, gold slipped back US$6.60 to US$999.40/oz last night. Weighing on gold now is a lack of fresh demand. Four digit numbers are seemingly too rich for seasonal Indian jewellery demand, while a drop in the rate of growth of ETF holdings suggests those who wanted to be set for a push through US$1000 already are. Something will be needed to spark any charge through the US$1000 level and a new gold rush. The most obvious candidate is a weak US dollar, if there is ever going to be a new gold rush.
The local market was sold down heavily yesterday on the back of Asian weakness, indicating Australian investors are a little jittery at these heights. However, with Wall Street failing to play the same game last night, the SPI Overnight surged back 46 points or 1.0%.
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