Daily Market Reports | Sep 26 2009
By Andrew Nelson
The Dow was down 42 points or 0.44%, while the S&P 500 lost 0.6% and the Nasdaq finished 0.8% lower.
Today capped off a three-day losing streak for Wall Street, with weaker-than-expected reports on durable goods orders and new home sales fanning already inflamed concerns after existing home sales fell 2.7% yesterday. There was a half hearted afternoon attempt from buyers to bring the gauges back into the black, but a wave of selling in the last hour of trade quickly put the kibosh on that.
The three major gauges booked their biggest weekly percentage drops since early July. The Dow was down 1.6% for the week, while the S&P was short 2.2% and Nasdaq gave up 2% for the week. If there was any good news to be gleaned from the week’s performance it’s that the major averages still remain higher for the month of September, which is no mean feat given this is historically the worst month of the year for stocks.
Stocks did struggle into positive territory just a few minutes after the open, but a surprise drop in durable goods orders last month had traders thinking long and hard about the economic recovery the US is supposedly undergoing. The US Commerce Department reported that orders for high-cost items that are meant to last three or more years, otherwise know as durable goods, fell 2.4% in August, the worst showing in seven months. The expectation was for a rise of 0.4%, although that expectation was cycling off a 4.8% rise in July, which was helped plenty by the Cash for Clunkers program. If you were to strip out autos, August orders were flat, but that is still nowhere near the expected rise of 1% ex-autos.
If it were just a few months ago, the new home sales read would probably have been taken as good news, but the 0.7% rise in August, which marked the fifth consecutive month of rising home sales, was still short of what economists were expecting. Yet taken on its own, you couldn’t help but think that it was another sign that the housing market has hit bottom. But it wasn’t taken on its own, and that’s because yesterday the National Association of Realtors reported that August sales of previously-owned homes fell 2.7% in August from July, after jumping in the previous month.
The market just wasn’t ready for any negative surprises on the real estate front and certainly not two in two days. And given the US housing market collapse and the subsequent subprime mortgage meltdown that sparked off the GFC and are seen by many as the catalyst that sent the US economy into recession in the first place, who can blame it.
Aside from the economic recovery issue, the market is also nervous that governments worldwide might start winding back stimulus measures too soon. This fear was made worse by comments from the Federal Reserve on Wednesday when it said it would slow one of its key programs to stabilise mortgage lending. However, world leaders at the Group of 20 nations summit are talking about keeping emergency economic funds flowing until there are sure signs of a sustainable recovery.
There was a third economic report released today, but it was simply pushed to the wayside as traders contended with the bigger recovery picture. While the market might have been questioning the legs of the current recovery, consumers seemed a little more comfortable, with The University of Michigan consumer sentiment index beating expectations for September. The index rose to 73.5 from an initial reading of 70.2, with economists thinking it would only rise to 70.5.
Economically sensitive stocks were among the worst affected, with technology, big manufacturers, banks, home builders and a number of consumer companies bearing the brunt of the selling. BlackBerry maker Research In Motion, who feature prominently in yesterday’s Overnight Report after reporting quarterly revenue that was below Wall Street’s forecasts after the bell, fared no better today. The stock dropped more than 17% and were helped little by the disappointing outlook that accompanied report.
Also after the close yesterday, Hewlett-Packard put out an FY10 revenue forecast that fell short of predictions, although the earnings outlook was in a range that could beat expectations. Tipping the balance on the mixed news were comments from the company that predicted the IT industry should return to growth next year, with the company expecting to outpace the rest of the market. Shares were little changed by the end of trade today.
Home Builder KB Home dropped 8.5% after its earnings missed forecasts and given the home sales data over the past two days, you’d have to think they couldn’t have picked a worse day to report.
On what was a fairly limited upside, Sara Lee shares jumped 6.4% after Unilever said that it will buy personal-care brands from Sara Lee for US$1.9 billion.
The US dollar fell versus the euro and the yen after having repeatedly hit one-year lows against a basket of currencies over the last few weeks. The greenback fared worst today against the yen, down more than 1% versus the Japanese currency after that country’s finance minister said he is against intervening in the currency markets to curb the rise in the yen. The downbeat durable goods read and disappointing housing outcome also helped the dollar little.
Unfortunately, the weaker US dollar had little impact on dollar-traded commodities, which usually move in the opposite directions. Gold fell US$4.10 to settle at US$989.50 an ounce, ending the week down for the first time in six weeks and remaining below the key US$1,000 psychological barrier. Gold had rallied 6.5% in the previous five weeks, but analysts at Commerzbank are saying that the price may continue to soften as short-term-oriented traders look to square their long positions now that prices have dipped below $1,000.
Crude oil for November delivery fared a little better, managing a rise of US13c to settle at US$66.20 a barrel. But futures tumbled more than 8% this week, their biggest weekly loss in more than two months.
The weaker dollar also offered scant help to the base metals complex, with the sell down on Wall Street and in commodities that began yesterday not softened by the weak US data. Copper managed to claw back some of Thursday’s losses, up $50, but it still failed to close above the US$6,000 mark, which Basemetals.com reports could fuel a bit of bearish sentiment next week. Otherwise, Aluminium and nickel booked losses, while the rest of the metals finished barely in the plus column.
The SPI overnight pretty much reflected the day on Wall Street, losing 20 points or 0.42%.
