Daily Market Reports | Jan 21 2009
By Andrew Nelson
Although the Dow Jones at first pared some losses during Barack Obama’s address, the index fell again as the speech proceeded and the November 20 closing lows of 7552 on the Dow Jones Industrial Average and 752 on the S&P 500 are looming once again. The Dow closed 4% lower, the S&P 500 dropped 5.3% and the Nasdaq tumbled almost 5.8%.
Regardless of what history says about President Obama’s inaugural message of hope, one thing seems certain, markets largely ignored the sentiment as the financial sector tumbled anew. Bank stocks were once again at the middle of it all, hitting new lows as mounting fears about the prospects for the financial sector served to exacerbate fears about the economic crisis.
Once again, the star of the day, other than the new president, was Citigroup. Just days after posting a US$8.3bn loss and unveiling plans to break up the company you could have been forgiven for thinking the worst was over. However, shares fell another 17% to below US$3 a share after analysts agreed the outlook was bleak for the global banking giant. A government nationalisation seems but the only option left.
Wells Fargo was a surprise inclusion in the selling, having been one of the more secure and better managed looking institutions over the course of the credit crisis. However, shares lost nearly 24% in afternoon trading after analysts also voiced some questions about its health.
State Street put on the ugliest performance, with shares tumbling 51% after the asset manager said in a market filing late on Friday that it’s sitting on US$5.5bn of unrealised after-tax losses on its investment portfolio and US$3.6b in unrealised losses from off balance sheet entities. Not helping manners, the Boston-based company reported a sharp drop in profit during the final three months of 2008 and issued a bleak forecast for 2009.
Even the hint of trouble was enough to send investors rushing for the exits. JPMorgan Chase, which is another of the banks that has seemed fairly stable through the course of this US recession, was hit by 17%. Despite reporting a surprise quarterly profit last week, the bank warned that 2009 would be difficult for it and other banks. Simply the wrong message in a market experiencing such unrest and distrust in banking stocks.
Investors were also spooked by developments in London after the UK government announced a significant expansion of its financial sector rescue plan. Royal Bank of Scotland started the UK panic after yesterday forecasting a 2008 loss of up to US$40.5 billion, the biggest loss in British corporate history. The news has many thinking the bank has now been driven to the brink of nationalisation amid fears the latest bailout package will still fail to alleviate the nation’s looming economic crisis.
This revived worries about the UK government’s increasing exposure to the nation’s troubled banking sector, sending the pound to historic lows against the US dollar and the yen. The pound traded below the US$1.40 level for the first time since 2001.
The UK’s two largest banks were certainly not immune, with Barclays dropping about 41% and HSBC Holdings sliding more than 14%. But Lloyds Banking Group was the UK’s main trading casualty. Shares erased almost a third of their value, down 31% and touching their lowest level in more than 20 years on the continuing woes in the banking sector. Lloyds denied there were any problems.
And that’s just the banks. Let’s not forget it’s still reporting season and sectors as diverse as consumer discretionary, materials and technology were all off more than 4% on the S&P 500. Big players like General Motors, Alcoa and Textron were all in the neighbourhood of 10% lower.
The expectation of poor quarterly results from big-cap tech companies out put pressure on the entire sector. Apple fell 5% and Microsoft gave up 6.2%. Both report later in the week. Shares in IBM dropped 3.5% in the lead up to its after market report. In a sweet play of irony, the company’s fourth-quarter profit beat Wall Street’s expectation and shares were almost 5% higher in the first half hour of after market trade.
Underscoring the selling and the widespread sense of unease was the VIX, which shot up 22.9%. This is its largest one-day percentage gain since mid-October, when it jumped more than 31%.
Base metals shared in the share market rout and posted losses in sympathy, even though the February WTI crude oil contract made a big jump on its expiration day. Short covering, we all know. Precious metals had a good day.
The SPI futures are indicating another day of losses for the Australian share market.
