Daily Market Reports | Apr 12 2008
By Greg Peel
The Dow fell 256 points or 2% on Friday. The S&P fell 2% and the Nasdaq 2.6%. It was all one-way traffic, but once again featured low volume.
The large industrial stocks – iconic names that make up a lot of the Dow Jones Index – have been dragged along with the rest of the market since the credit crunch began but have held up much better than those sectors which have been largely crucified – financials, builders, consumer discretionary. The leviathans have rumbled on, drawing much of the mandatory equity investment in these troubled times as long term defensives and bottom-pickin’ value. Until Friday.
General Electric is the only company to remain as is in the Dow Jones Industrial Average since its inception over a century ago. Created to sell the first light bulb, GE is now a conglomerate operating in financial services (particularly consumer credit cards), entertainment (it owns the NBC network), consumer and industrial machinery, and health care. If you wanted a single-stock barometer for the state of the US economy, GE is it.
On Friday GE posted a first quarter loss of 6%, and an earning per share of US44c. Given the market had expected US51c, this was a disaster. GE went further, and downgraded its 2008 earnings outlook. Among the most veteran of traders still operating on the NYSE, no one can ever remember GE making a profit downgrade before – ever. As a consequence, GE’s shares fell 12.8%. It was the worst day’s fall since the Crash of ’87.
Thus everything was sold down in GE’s wake, and just to make matters worse the April consumer sentiment number fell to its lowest level in 26 years, and much lower than expected. And the price of imports into the US jumped a solid 2.8% in March, driven largely by oil.
The impact of the GE result is intensified by the fact it is an early reporter. The result season has only just begun. If GE’s result is that bad, what’s the rest of the market going to be like? Stock markets are all about earnings, and earnings projections are being lowered by the day.
In US dollar land, it was all quiet on the Western Front. This weekend sees the meeting of the G7 finance ministers, and no one’s going to take a big position ahead of any surprise dollar-saving initiatives. However, no one really expects an initiative of any kind – it would certainly be a first. And if pre-conference press releases are any guidance the ministers will do a fabulous job of summarising everything that’s happened up to now, which is very helpful. Strategies? Well, that’s asking a bit much.
The US dollar was indeed weaker on the news of GE and sentiment, but stabilised from its lows later in the session. For commodities, it was a day of consolidation, and very much a Friday. Gold fell US$4.00 to US$924.90/oz despite the weaker dollar. Amazingly, oil rose only US3c to US$110.90/bbl. One would have to go back a long way to find a daily move of such low magnitude. Base metal prices were steady to slightly higher. The Aussie fell back around a third of a cent to US$0.9282 over the 24-hour period.
The SPI Overnight fell 45 points, which seems tame against Wall Street’s 2%. However, having breached the 5500 mark the ASX 200 was noticeably weaker last week than the US movements might have suggested, as Australia deals with its own financial and economic problems.
The Dow close at 12,325 puts it at only 63 points above the Monday close before the Tuesday April Fools’ 400+ rally – the rally that suggested all is forgiven and let’s get back to business. Wise heads have long suggested, however, that there has to be a lot of bottom bouncing yet before we can truly become more confident.
