Daily Market Reports | Jan 30 2010
By Andrew Nelson
Dow down 53.36 or 0.53% to 10,067.10, while the S&P 500 was 10.66 pts or nearly 1% weaker at 1,073.87 and the Nasdaq fell 1.45% to 2,147.35 on the continued selling of tech stocks.
Stocks ended lower on Wall Street overnight, capping off a negative month, and making it the third year in a row that January has ended in the red. The Dow did get off to a good start on a batch of positive economic news, but mid-afternoon it was back below the gain line, with investors keeping one eye on the problems in Europe and wondering how they’ll impact across the Atlantic.
In essence, the day was a fairly mild version of the microcosm the market has existed in for the best part of the month. Heavy selling despite reasonably strong tech sector earnings and a general weakness across the commodities sector due to earnings disappointments and doubts about the potential for increasing global demand, as China continues to reign in its banks. Add to that mix the eurozone’s current problems with Greece, Portugal and Spain, which not only serve to heighten concerns about recovering global demand, but by extension also call into question the whole idea of taking on more risk.
The Dow and S&P 500 booked their biggest monthly declines since last February to close at the lowest point since Dec 6 of last year, while the Nasdaq was at the lowest point since Nov 30. For the month, the Dow and S&P 500 are down about 3%, while the Nasdaq finished the month around 5% lower. The Dow is now down 6.1% from the high it set on January 19.
Early in the session, stocks were up by as much as 1% after a number of reports showed the US economy had improved at a faster than expected rate in December. Consumer sentiment and Midwestern business activity also improved in January. However, the market reversed course around midday and was in the red by 2:30 after investors started to sell off shares in technology bellwethers as Apple, Microsoft and IBM.
Dow major Microsoft actually reported higher quarterly sales and earnings that beat estimates on the back of some strong sales for Windows 7, but shares still fell 4% in what was a tech sector wide sell off. Amazon.com also reported higher quarterly sales and earnings that topped estimates, but shares slipped 1%. A fairly soft profit forecast from flash memory maker SanDisk Corp didn’t help matters, with the stock tumbling 12.3%. The Philli Semiconductor index, or SOXX, dropped 3.7% on the day.
Probably one of the most surprising features of this US reporting season is how successful companies have been. With 220 companies, or 44% of the S&P 500 having reported results, earnings are on track to have grown 206% from last year, while revenue is on track to have grown 7% according to estimates from Thomson Reuters.
But take a closer look and you’ll see that much of the year on year growth is coming from the financial sector, which reported a loss in 2008 yet is on track to report some serious profits for 2009. If you strip out financial sector earnings, overall earnings growth drops to 15%, while revenue growth drops to just 2%.
And with US President Barack Obama’s highly publicised war on the banks just kicking off, who can guess how much longer US banks will be reporting these kinds of profits? Although, market commentators do note that the President did tone down the rhetoric a bit in his State of the Union address earlier in the week.
In economic news, the US Commerce Department said gross domestic product, the broadest measure of the economy, had jumped to a seasonally adjusted 5.7% annual rate in the fourth quarter, which was certainly better than the 4.8% that was expected .The Chicago Purchasing Managers’ index for January came in at 61.5, well above the 57.2 predicted by economists, while the Reuters/University of Michigan survey of consumer confidence in January also topped expectations at 74.4, beating forecasts for a read of 73 and hitting a 2-year high.
While there was no jobs data release, President Obama is still set to unveil a US$33 billion package of tax credits later today, which is aimed at sparking more job growth. The plan includes providing a $5,000 tax credit for each net new employee a business hires.
Yet while the share market was able to shrug off the good economic news, the US dollar certainly didn’t. The greenback clawed back almost 1c on the Aussie and it rose to a fresh eight-month high against the increasingly troubled euro on the heady cocktail of positive domestic economic data, combined with the continued woes of Greece, Portugal, Spain and co.
Gold slipped on the rising dollar, down US$4.90/oz to US$1,080.90/oz. Oil did it a bit tougher, finishing down 1% on the rising dollar, which more than offset hopes for better demand in the face of a US recovery. By the end of trade, crude oil for March delivery was down US75c at $72.89 a barrel at the New York Mercantile Exchange. Oil gave up 2.4% over the week and has lost 8.3% in January.
Base metals continued their downward tack, hit not only by the rising US dollar, but also by”waves of investment-based liquidation”, reports Basemetals.com. The day capped off what was a week of steep declines, with copper, lead and zinc pushed to fresh multi-month lows. Nickel was the only metal in the complex to boast a gain, picking up US$150 to hit one-week highs despite stocks jumping to a new record high.
European markets were surprisingly higher, riding the optimism sparked by Wall Street’s early gains. In London, the FTSE closed 0.8% higher, while the German DAX picked up 1.2% and the French CAC 40 was up 1.4%. Yesterday, Asian markets tumbled, extending the recent sell off amid China’s bank lending curbs and S&P’s warning that it may cut Japan’s debt.
Australian investors focused on the negatives, with the SPI 200 March 10 contract dropping 47 points to 4499.
Good news readers, next week ushers in the return of Greg Peel to the Overnight Report after a much needed New Year hiatus.
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