Daily Market Reports | Jan 24 2009
By Andrew Nelson
US Markets finished mixed on Friday, but the full week performance was decidedly weak, as what turned out to be very shallowly buried concerns about the financial sector roared back into prominence. Not helping matters was the US reporting season pushing through on a mostly negative footing, the flow of dire economic news continuing apace and massive intraday swings once again becoming the norm.
Friday trading picked up where the previous day’s trade had left it; in a downward spiral of negativity and volatility. But then stocks began to recover from the rocky start after Google’s upbeat earnings parted the clouds and let some sun shine through, especially on the Nasdaq. Hopes of further aid from Washington sparked a small rally in bank stocks and helped further relieve the broader market, almost offsetting the impact of GE’s dismal profit report.
The S&P 500 rose 0.54% on Friday, but was still 2% lower for the week, while the Nasdaq ended the day 0.81% higher, falling 3.4% over the week of trading. The Dow Jones finished 0.56% lower on the day and was down 2.5% on the week and is once again flirting with the 8000 mark, a key psychological barrier. The gauge actually fell below the 8000 level on four consecutive days over the week, but managed to pull itself back up again on each occasion.
This could be a significant sign, as it keeps the world’s biggest blue-chip average above the bear market lows of last November and put some sort of a floor in place. If stocks keep bouncing off that sort of floor at 8000 level over the next few sessions and each time move a bit higher, there will be more than a few that will begin lining up to call it the bottom.
Even the Dow briefly turned positive during Friday’s session, but it couldn’t overcome the drag of GE and the concerns about the weak business outlook in 2009 for some major industrial companies that the company’s result announcement spawned.
The market was definitely off on the wrong foot after General Electric’s lower quarterly earnings added to worries not only about the health of corporate America, but also about the health of America in a more general sense. Shares fell 11% after the company reported weaker than expected sales and weaker earnings that came in at the low end of its own projections.
The company also confirmed its intention to retain its top-flight credit rating and that it was maintaining its US$1.24 per share dividend, but many can’t see where the money will come from and are worried it will turn out just a matter of time before either, or both are cut. According to the Wall Street Journal, much of the focus on GE’s result comes from worries about the issues in the financial system and how they may not only hurt the company’s total operations, but also its quite significant finance unit.
Also weighing on the Dow was heavy equipment maker Caterpillar, which dropped 4.2% after rival Komatsu lowered its profit forecast for the year due to what it called a sharp decline in global demand.
Xerox tumbled 8% after it reported weaker quarterly sales and earnings that missed estimates. The business machine maker also forecast first-quarter profit that is short of estimates. None of these releases was a positive pronouncement on the outlook for corporate spending.
But news that President Barack Obama and his economic advisers will meet on Saturday fuelled hopes that the new administration will put together another rescue package for the ailing financial sector. The S&P Financial Index rose 3.4%, with Bank of America, JPMorgan Chase, Citigroup and other banking shares bouncing.
JPMorgan Chase and Bank of America were two of the sector’s top performers, with market talk of further government cash injections to banks helping push things higher, while bargain hunting also proved to be a positive motive force, once some optimism returned. JPMorgan Chase gained 5.1% and gave the greatest support to the Dow, while Bank of America shot up 9.3% and Citigroup jumped nearly 12%.
The Nasdaq was the day’s best-performing index, dragged higher on Friday by large technology companies, including Google, whose shares rallied 5.9% after the Silicon Valley company’s quarterly earnings beat estimates. Chip makers were also strong, with Advanced Micro Devices rising 2.5% despite reporting results that missed expectations.
M&A news was also on the cards after rumours that Pfizer, the world’s largest drugmaker, is reportedly in talks to buy rival Wyeth in a deal that could be worth over US$60 billion. Pfizer shares were little changed, but Wyeth rallied 13%.
Crude-oil futures recouped losses and Chevron ranked among the Dow’s best performers as March crude oil futures rose more than 6% to settle above US$46 a barrel, aided by expectations of a cold snap in the US Northeast. Chevron shares gained 1.2%.
Both energy and materials names traded higher for much of the session. The US dollar gained versus the euro and fell against the yen, while COMEX gold for April delivery rose US$37.20 to settle at US$897.70 an ounce.
Base metals initially continued their negative trend at the LME, but after hours (so called PM trading session) they all booked significant rallies. Traders in London talked about short covering ahead of the Chinese New Year. Readers who use prices on our website as guidance will therefore notice LME prices are indicating the metals had a horrible session, while the US data reflect the exact opposite. This is why.
Nickel was the biggest technical gainer, rising 10%, but other metals also notched up sizeable advances. Tin rose 7.5%, copper 5.2%, zinc 4% and lead 3.8%. Only aluminium was a comparative laggard, as it rose by less than 1% .
In global trading, most European markets ended lower last night. Britain looks to be officially in a recession after the government reported gross domestic product declined for the second quarter in a row. London’s main gauge finished flat after hitting its lowest mark of the year. Technology stocks led the way down in Asia yesterday after Japan’s Sony forecast its first annual loss in 14 years and Korean chip maker Samsung Electronics posted its first-ever quarterly loss Friday.
Most Asian markets will be closed on Monday, including Australia’s.