Daily Market Reports | Dec 03 2008
By Greg Peel
The Dow closed up 270 points or 3.3% while the S&P added 4% and the Nasdaq 3.7%.
The Dow rallied from early on to be up a couple of hundred points by lunch time but had drifted back to square by 2.30pm. Buyers then returned, and the last hour last night saw a scramble rally once more to the close.
Yesterday the National Bureau of Economic Research used its own complex retrospective measures to declare that the US was indeed in a recession and had been for a year. At least, a recession by NBER measures, which has nothing to do with two consecutive quarters of negative GDP growth. It was about a year ago that the first commentators began to suggest the US had entered recession although it would take three more GDP results before the first negative growth was officially recorded.
So what is a recession? Perhaps the question really should be: Does it matter?
The answer is: Yes it should because more than anything recession is a state of mind. If the newspapers say “We are in recession” then the economy will act accordingly. Everyone will tighten their belts and stop spending because of the recession, which of course will lead to recession anyway. Recessions become the ultimate excuse.
For the stock market, recession is bad news because it means lower corporate profits, but recessions never last forever and if the US has been in recession for a year, then we are not at the beginning. We are somewhere in the middle already. Stock markets always lead the market out ahead of a return to economic growth.
Not that this provides us with any clear indication of when that will be, but there is still plenty of talk about this bear market rally which is so far a bit bumbling and stumbling, but still expected by many beyond what we have already seen.
Last night General Electric announced its next result would be at the low end of guidance but its dividend would be maintained. In the context, both are good news.
The three automakers returned to Washington today to present their action plans required if they want any public money, although Ford indicated it could probably scrape through 2009 without assistance if it had to. Supposedly, more good news.
The bad news was the auto sales figures for November which saw the now regular 30-40% falls across the board. The recession state of mind is at work.
A combination of the NBER report and shocking car sales is hardly good news for oil, which fell again last night despite the US dollar slipping back once more. Oil fell US$2.32 to US$46.96/bbl. While the demand side is clearly a problem, there has been little help on the supply side given OPEC’s unscheduled meeting on the weekend failed to result in actual production cut agreements. However, the scheduled meeting is later this month, and that’s when a production cut announcement is expected.
The fall in the US dollar allowed gold to scrape back US$8.90 to US$778.20/oz while the Aussie remained steady around US$0.6413 despite the 100 point rate cut. At the end of the day, 100 points split the difference between economist expectation of 75 points and the futures market’s 125.
Base metals remain weak in London although falls were tempered by the falling US dollar. Copper and aluminium were down 2% and nickel 3%. London closed before the horrible US auto sales numbers.
The SPI Overnight rose 70 points or 2%.
