Daily Market Reports | Jan 23 2009
By Andrew Nelson
The Dow Jones fell 1.35% after dipping below the 8,000 level, a key psychological barrier, before bouncing back above it. The Dow has been loitering in the neighbourhood of 8000 for a while now, but has yet to revisit the five-and-a-half year closing low at 7552 posted back in November. The S&P 500 slid 1.08%, while turbulence in the tech sector saw the Nasdaq hit the hardest, ending 2.76% lower on the day.
More losses in the financial and tech sectors pushed the whole market lower in a fairly volatile trading session. The losses were larger earlier in the day, but a lunch time recovery stretched though the afternoon and while stocks came back off again, the market gave one last kick in the final half hour.
Volatility levels are beginning to again look like what we saw back in November, when it was it was up 250 one day, then down 300 the next. Only this time around it’s a lot scarier, as we’re sitting so close to the 8,000 level and the scary deeps beneath it.
The banking sector was once again at the centre of proceedings, with the broader market tracking the ups and downs of the sector. A big shake up at Bank of America did little to help confidence, seeing the S&P 500 financial category finish well over 5% off the pace. Tech stocks fared little better, with investors taking flight after Microsoft disappointed with its earnings and then spooked the market by saying it would cut up to 5% of its estimated work force over the next 18 months. Above all, the company gave no guidance for the rest of the year.
Headline economic data were also unforgiving, showing further deterioration in the labour and housing markets had occurred and once again, at a greater pace than hoped for. Initial weekly claims for jobless benefits rose to a much greater than expected seasonally adjusted 589,000, a 26-year high. Meanwhile, housing starts and building permits both tumbled to record lows in December.
Much of the midday optimism came from the White House, with investors reacting well to comments that the new administration will work with Congress to ensure the government moves as quickly as possible on a stimulus package. The language seemed clear that President Obama’s administration intends to do whatever it can to restore growth and normalise markets. Just a little bit of political rhetoric, but it did the trick and also shows how desperately the street wants to hear some sort of sense coming from 1600 Pennsylvania Avenue.
Back to the banks, because that’s where most of the action was. Bank of America fell 14% after CEO Kenneth Lewis dismissed former Merrill Lynch chief John Thain. Citigroup sank a 15% amid continued speculation about a possible federal takeover of ailing financial institutions. There were reports that the chief executives of both Bank of America and Citigroup had bought some company stock last week, according to SEC filings, but this news was little help.
Insurance stocks were also hit by worry about the carnage in the bank sector. Aflac shares were battered almost 37% lower after Morgan Stanley raised concerns about its exposure to certain securities issued by hard-hit European financial firms, including Royal Bank of Scotland, according to reports cited by CNN.
Despite strong earnings reports from IBM and Apple in the past two days, Microsoft led a parade of technology stocks lower after it issued what was a weak profit report and made a big job cut announcement. Microsoft plunged more than 8% on news second-quarter earnings missed estimates on higher revenue that also missed estimates. The company also advised it was cutting up to 5,000 employees, including 1,400 that will lose their job today.
The news served as a sobering reminder that very few companies, even in technology, are immune from this recession. Ebay and Nokia, which also dished up results that disappointed investors, were off by about 11% each.
The one bright spot in the tech sector was Apple, which gained about 7% following the company’s better-than-expected sales and profit report Wednesday.
Crude oil futures fell below US$43 a barrel amid growing demand concerns as inventories continue growing. US light crude oil for March delivery eventually finished US12c higher to settle at US$43.67 a barrel on the New York Mercantile Exchange.
Global economic gloom was also fuelled by negative data out of China yesterday. Although China’s refined copper imports virtually doubled to a record high of 211,527 tonnes in December, its GDP growth slowed to 6.8% in the fourth quarter of 2008, a further sign that the global recession is biting.
Base metals were mostly lower in LME trading as buyers backed away in the face of dismal fundamentals. After the China news, copper was in the selling spotlight. The red metal finished down another 3.7%. According to reports from basemetals.com, pockets of bargain hunting saw other metals try and pause for breath after the recent sell-off, but surging inventories and economic woes kept sentiment in the bear camp.
Basemetals.com believes prospects for the metals complex are lacklustre in the short-term, with the path of least resistance seen on the downside. The good news is, at least most metals have some breathing space above the bear-market lows.
The US dollar rose against most major currencies, buoyed by its perceived safe-haven status amid investor concern about global economic health. This helped COMEX gold for April delivery rise US$8.80 to settle at US$860.50 an ounce.
Signs are for a negative start to local trading, with the SPI 200 Futures Index sitting 53 points, or 1.5%, lower.
