Daily Market Reports | Jan 09 2009
By Andrew Nelson
Stocks in the US had to battle serious headwinds for a second consecutive day in New York last night on worries about the ailing consumer after Wal-Mart’s soft December sales and lowered earnings outlook confirmed retailers saw little relief from holiday spending. By some accounts it was the worst Christmas shopping period in 40 years and while there were some pockets of resistance that helped stave off greater losses, both the Dow and S&P 500 finished well in the red.
The health of the American consumer has continued to draw into focus and the latest retail news, coupled with tomorrow’s December employment report that is expected to show massive job losses. It’s therefore no wonder people are starting to fear President-elect Barack Obama’s US$775 billion spending plan won’t prevent the economy from shrinking further.
Let’s not underestimate the importance of tomorrow’s jobs data release, as each of the last six sessions prior to the release of the monthly report saw a triple-digit decline in the Dow.
By the end of play, the Dow Jones industrial average had lost 0.3%, while the S&P 500 index closed marginally higher. The bright spot was the tech laden Nasdaq composite, which gained a few points.
Wal-Mart, which had been thriving despite the recession, posted results that were well shy of forecasts and also warned that fourth-quarter results won’t meet forecasts. The retailer said same-store sales rose 1.7% in December, excluding fuel, which was well short of the 2.8% gain expected by the market. Traders were merciless and shares in Wal-Mart slumped 7.5%.
The big-store retailer led the bulk of consumer-staples companies, including tobacco producers, food companies and makers of household goods, lower. Shares in Gap fell 4% after it reported a worse than expected 14% drop in same-store sales. The clothing retailer also said fourth-quarter profit will be worse than currently expected.
Among other companies that hit the skids, Sears Holdings reported a 7.3% drop. However, the company also forecast that fiscal fourth-quarter earnings will top current estimates. Shares gained 21%.
The news acted as a powerful drag on the blue-chip benchmark and led investors to start dumping shares in the consumer-staples sector, which was one of the day’s weakest among the S&P 500’s industry groups. This slide is what pulled the broader S&P 500 back down below the break-even mark despite modest gains in a range of other areas, including materials and energy after a variety of oil, gold and other commodity stocks rallied.
By the end of trading, COMEX gold for February delivery had picked up US$12.80 to US$854.50 an ounce.
The energy sector advanced despite a continuing decline in oil prices, while the tech sector scratched out some small gains, led by Microsoft, which was up 3%, sending the Nasdaq back over 1600. The tech sector has often been a safe haven for bulls in recent months as a good number of technology firms maintain significant cash reserves and run with minimal overhead from doing business online.
NYMEX light crude oil for February delivery fell another US$1.44 to US$41.19 a barrel after tumbling 12% on Wednesday. Nonetheless, gasoline prices rose US3.5c to a national average of US$1.762 a gallon, according to a survey by motorist group AAA.
Late breaking news that Citigroup has been in talks with a number of congressional financial leaders and it will now support legislation to stem home loan foreclosures also helped cushion the market heading into the last stretch of the trading day. However, it didn’t do much for stocks in the sector.
Citigroup actually inked a deal with Democratic leaders in Congress that would allow judges to set new repayment terms for millions of mortgage holders who wind up in bankruptcy court. The move was surprising, as the industry had been fighting tooth and nail against such changes, which mark a seismic shift in current practice.
Citi shares finished marginally higher, but JP Morgan Chase was down 3% and Bank of America was off 1.2%.
The US dollar tumbled versus the euro and yen, but held its own against the Aussie.
The Australian market might open slightly higher as SPI futures have reversed from signalling a small opening loss to a small opening gain this morning.
