FYI | Jul 17 2007
By Greg Peel
It might be the benchmark for all stock markets across the globe, but it’s easy to forget that the Dow Jones Industrial Average consists only of the top 30 US blue chips. It is also a price average and not a market capitalisation-weighted index, and that’s just another reason why the “real” US equity traders and analysts concern themselves only with the S&P 500 as the true equity indicator.
Such it was that the Dow closed up 44 points or 0.3% last night while the S&P fell 0.2% and the Nasdaq 0.4%. The Dow was up 82 points at one stage, only 11 points shy of the 14,000 mark.
Driving the Dow were positive earnings reports from Caterpillar and United Technologies and, most significantly, a Financial Times report suggesting Vodaphone might approach Verizon for a US$160 billion buyout. Even the FT report noted Vodaphone had not yet actually informed Verizon of this, but that didn’t deter the bulls. It would be the biggest buyout in history.
Across the broader market the sentiment was more mixed, highlights being McDonalds upgrading its guidance (breakfast has been a winner), Mattel posting solid offshore sales growth for its veterans Barbie and Hot Wheels (now that takes me back – the cars, the accessories, and I liked Hot Wheels too), but Ford falling on reports it would not be selling Volvo as hoped. Ultimately losers led gainers two to one.
Adding to negative sentiment later in the session was the fact that Bear Stearns had suggested it would provide an update on its subprime-dogged hedge funds last night but didn’t. Why not? the market pondered. This week sees profit results from Merrill Lynch, JP Morgan Chase, Bank of America and Citigroup. Those stocks were weaker as the lack of news from Bear Stearns seemed ominous.
Oil was big news as the IEA continued to preview its extensive market study and Goldman Sachs came out with another of its shock predictions, calling crude potentially at US$95/bbl by the end of the year (more on that later). Nymex crude rose another 22c to US$74.15/bbl for August delivery.
Despite the ever rising oil price and its inflationary overtones, the US bond market pulled back once more to 5.04% as the Bear Stearns no-show sparked another supposed flight to quality. The US dollar now looks like doing some work against the euro at the 1.38 level, and precious metals slipped slightly. Base metals were also down slightly, with nickel falling 1.75% in New York to trade below US$15/lb.
The SPI Overnight was up 2 points.
This week sees a continuation of the US earnings season, with a particularly heavy weighting in Dow component stocks. This increases the potential of more diversion from the broad market as the week progresses.
