Daily Market Reports | Oct 24 2009
By Andrew Nelson
The Dow was down 109 points or just over 1% and back below 10,000, the S&P 500 dropped 1.22%, while the Nasdaq was only off 0.5% after some good news from a few key tech sector players.
The major gauges booked daily and weekly losses, with a bout of profit-taking after yesterday’s run that had pushed stocks to new yearly highs. Investors shrugged off some decent economic news and good numbers from Microsoft and Amazon.com, focusing on weak results from a few industrial companies, while declines in commodities, sparked by a rebound in the US dollar, took a heavy toll on energy and mining stocks.
On the week, the Dow was down 0.2%, breaking a streak of two weekly gains. The S&P 500 gave up 0.7% and the Nasdaq was down a more marginal 0.1%.
News on the economic front was fairly soothing. Federal Reserve chairman Ben Bernanke said that the financial turmoil is fading, but cautioned that US lawmakers have to reform the system to make sure this sort of mess doesn’t happen again. Meanwhile, existing home sales jumped to a 5.57m unit annual rate in September, versus expectations for 5.35m and up from 5.1m in August.
Stocks were actually up in the morning after upbeat results from Microsoft and Amazon.com and the encouraging reading on existing home sales. But the tone turned negative as the day wore on, with investors looking to cash out of some of the biggest leaders of the recent rally. The sell-off was especially hard on banks, energy shares and transportation companies.
Even the tech sector, after its initial earnings boost, eventually gave in to the weight of the selling pressure, dragged lower by chip and biotech stocks. CNBC reports that a brief misunderstanding that Microsoft was lowering its full-year revenue forecast (it actually lowered its operating-expense forecast) might also have played a part in the weakness of the sector.
Early in the morning Microsoft reported weaker quarterly sales, but income easily beat expectations, with cost cutting and strong sales of its Windows operating system supporting the advance. Yesterday’s roll out of the company’s new Windows 7 operating system, which is expected to boost PC sales in the coming months, wouldn’t have hurt. Shares in the Dow component rallied over 9% in morning trade before giving up nearly half of the advance by the bell.
Amazon.com topped forecasts and delivered a strong revenue outlook after market close yesterday, helped by strong sales of its e-reader, Kindle. Shares ran hot in after-market trade yesterday and then rallied 25% today, hitting a ten-year high.
Diversified manufacturer Honeywell also reported before the bell, with results beating estimates even though profit fell 15% to 80c per share. The company held its full-year earnings target steady, but also said it expects to see sales level off next year. The less than upbeat outlook was probably one of the reasons the shares closed a little more than half a percent lower.
Dow component American Express was another key market player that finished in the red after late yesterday reporting weaker quarterly sales and earnings that none the less beat analysts’ forecasts. Shares fell 5% today. Energy sector services leader Schlumberger was also down 5% despite nudging past expectations.Yet again, a less than rosy outlook can take some of the blame. Along with its result, the company predicted that natural-gas activity would remain weak until late 2010.
It’s not often that this is the case, but railroads generated a lot of the day’s downward pressure. The Dow Jones Transportation Average (DJT) tumbled 3.5% after downbeat comments Friday from Union Pacific, while Burlington Northern issued a fourth-quarter forecast that indicated freight demand, which serves as a gauge of the broader economy, has yet to turn a corner. Still, the DJT, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week.
Up to today, 199 companies, or about 40% of the S&P 500, have reported results so far. On the whole, profits are on track to have fallen 18.2% versus a year earlier, according to the latest from Thomson Reuters. Revenue is expected to have dropped over 10% from a year ago. Yet the week’s choppy trade begs the question as to whether the third-quarter earnings reports to date, which admittedly have topped Wall Street expectations, go all the way in justifying the market’s better than 60% rally over the past seven months.
The US dollar continued to fire, gaining against the Aussie, euro, the pound and the yen. It is now four days of straight gains against the yen and three against the euro, with the shift certainly taking its toll on commodities and on investors who had been piling into riskier assets. By the end of the day the US dollar index had picked up half a percent against a basket of currencies.
Crude-oil futures ended the day lower, pressured of course by the rebounding US dollar, weaker stocks and increasing concerns that the market may have outstretched the current spurt of global growth. Crude for December delivery fell US65c, or 0.8%, to US$81.19 a barrel on the New York Mercantile Exchange after hitting an intraday high of US$81.78 a barrel. Gold was also weaker, slipping US$4.10 to US$1054.80.
Across the pond, the UK’s Office for National Statistics said the British economy had booked a record sixth straight quarter of contraction in July through September. The news did little to support those who were predicting the nation’s deep recession was nearing an end. Across town at the metals exchange, things were looking a little better, with base metals softening in the afternoon as a poor day on Wall Street unfolded. But the complex still managed to close higher across the board despite the stronger dollar.
Basemetals.com reports that copper and zinc hit fresh highs for the cycle before paring gains in the afternoon, but still closed up around 1%, while aluminium and tin also hit new peaks since the summer months.
Global equities markets were mixed. In Europe, London’s FTSE 100 gained 0.7% despite the poor economic read, but France’s CAC 40 lost 0.3% and Germany’s DAX gave up 0.4%. Asian markets ended higher yesterday.
Australian investors seem set to follow Wall Street’s lead, with the SPI overnight down 28 points, or more than half a percent to 4824.
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