Daily Market Reports | Oct 15 2008
By Greg Peel
The Dow closed down 76 points or 0.8% while the S&P closed down 0.5%. Tech stocks did not come out looking great after their big rally on Monday, and the Nasdaq lost 3.5%. Tech stocks were spooked when Apple announced the release of its first sub-US$1000 Mac notebook and called it the “recession notebook”. A tad indelicate, Steve.
But for the indices that matter, it was an encouraging close. After an 11% history-making rally on Monday it would have been quite sensible to expect a couple of hundred points or more to be given back on the Dow last night, as that is usually the way of things. As it was the sellers gave it a good shot, but the buyers were resilient at the death.
Details of the latest – and let’s hope the last out of necessity – comprehensive, all-encompassing, shock and awe rescue plan from the US Treasury and Federal Reserve was announced before the bell. There were little surprises, other than the market was impressed with the US$250bn figure provided to achieve the nine-bank capital injections which see the taxpayer assuming callable, three-year preferred stock and further warrants 15% above the money. Details of the plan will appear in a story later today.
The market was impressed enough to push the Dow up over 400 points from the bell, but comprehensive or not, you just do not go up 965 points one day and another 400 the next. If you do, you get scared, because it means there’s a big drop ahead somewhere. Everyone had their eyes on the Libor rate in London and it did indeed start to drop, signifying an easing in the global credit freeze. But having dropped early, it then stabilised.
The governments of the world have a comprehensive plan which, in retrospect, was exactly what came out of the G7/G20 meetings on the weekend. Initially it looked like the G7 had achieved little more than vague intentions but as first the UK, then Europe, then Australia, and now the US rolled out close to identical plans it became apparent that there was a coordinated plan all along.
Credit markets may have shown signs of thawing, but despite the magnitude of the global rescue plan it is still no microwave oven. Nothing could be. The governments of the world have merely been able to take the credit market out of the freezer – where it’s been for a year – and sit it on the kitchen bench. Right now the frost has melted but the meat is still as hard as a rock and it will take time, and patience, before we’re all eating roast dinner.
When Libor stopped dropping last night it was the trigger, and in came the sellers. They were most likely profit-takers, some more redemption selling and so on, but this was something that was always on the cards. As it was, the Dow reached as low as down 300 points by three o’clock. Another 700 point swing – ho hum – but at three o’clock we all know what comes next.
But it didn’t. There was no three o’clock selling wave and the buyers began to win once more, pushing us up to almost square before market-on-close trades gave us 76 points down. Put the day’s ride together, and the signs are more positive than they are negative.
Having shot up yesterday, oil returned to taking a bit of a hammering last night as the market flips and flops between economic rescue and economic recession. The US gasoline price at the pump has begun to collapse and the market is taking that as a bad sign. It could also be taken as a good sign for an economy that is 75% dependent on the consumer. But either way oil fell US$2.56 to US$78.63/bbl.
If you’re looking for a similar fall in pump prices in Australia, forget it. Not with the Aussie now at US70c. There’ll be no relief, but bear in mind an Aussie at US98c saved us from petrol at over $2.00/l when oil was over US$140/bbl.
Oil’s fall came despite an across the board fall in the US dollar last night – a response to the latest US government spending spree. This was enough to help base metals in London continue their recovery, and all metals put on another 1-2%. Except zinc unfortunately. It fell over 5% again. But metal prices closed when the Dow was weak, which is a healthy sign.
Gold responded to a lower dollar by clawing back US$4.00 to US$835.20/oz. The Little Aussie Battler was thrown around but settled slightly lower at US$0.6961 having been at 71 earlier in the session.
The SPI Overnight has spoiled the party a bit and fallen 99 points or 2.2%, likely because materials stocks in the US copped some solid profit-taking last night while banks were mostly stronger.
After the bell the market held its breath as Intel announced its third quarter profit and fourth quarter guidance. As chip-maker to the world, Intel’s projections are a good barometer. As it was, both the look-back and look-forward results were reasonable and near enough to expectations. Although everyone – managements and analysts alike – currently agree that forecasts are a bit of a shot in the dark right now.
Earlier, biotech bellwether Genentech had similarly posted reasonable results. As we reflect on what will hopefully be a successful global rescue effort, attention will now begin to turn away from just credit market-watching and back to stock market reality – third quarter earnings season. Results seasons alone have the capacity to cause a few sharp ups and downs, so the amplitudes of this one will no doubt be magnified. Once again – strap in.
By the way, it’s been two whole weeks since the Dow last closed with a move of less than triple digits.
