Daily Market Reports | Feb 21 2009
By Andrew Nelson
The “Down” lost another 100 points, or 1.3% on Friday after an afternoon rally that peeked into positive territory, raising false hopes for a positive finish. It is becoming more obvious by the day that the market has now run out of patience with Washington, with this week’s break beneath November Dow lows indicating traders are willing to keep selling until someone comes up with some finite steps that will lead to a solution.
This uncertainty has seen selling in the bank sector pick up pace over the last 10 days since the US Treasury announced a revamped bank bailout plan that critics say provides few tangible details. In particular, the plan has still not established how to value bad assets that are cluttering up bank balance sheets. Remember the credit crisis we had that was due to unquantified toxic assets? A lot has been said over the last year or so, but to quote Led Zeppelin (which pretty much describes up the current market): the song remains the same.
The S&P 500 finished down 1.1%, but would have seen its lowest close since April 14, 1997 had it ended on its intraday lows. After spending at least part of the day in the black, the Nasdaq closed just one point lower, with the tech sector continuing to perform better in 2009 than the rest of the market. The Nasdaq lost 6.1% on the week, while the Dow was down 6.2% for the week and the S&P 500 was 6.9% lower.
Most of the major market indicators moved off their earlier intraday lows leading in to the afternoon session as banking executives and Obama administration officials tried to dispel some of the growing concern about a government takeover of struggling financial institutions. The government holds large quantities of preferred stock in many banks through the TARP. However, while White House Press Secretary Robert Gibbs said the nationalisation of some banks may be needed “at least for a short time,” he confirmed a “privately held banking system is the correct way to go” and that the US “will continue to have” a private banking system.
Bank of America briefly turned positive on the news, after having been down more than 30% earlier in the day. Still, BofA and fellow problem child Citigroup, the two lenders investors fear are most prone to government takeover, fell 6% and 17%, respectively.
Also helping fuel the mid-afternoon rise was news from CNBC, which reported that the US Treasury Department would be releasing more details of the Obama administration’s bank rescue plan next week. A Treasury spokesman declined to comment, reported the network. Still, few financial stocks were spared from the carnage. Morgan Stanley and Wells Fargo were both losers, while UBS struggled under the pressure being applied by US officials who are clamouring for the disclosure of the identities of thousands of US clients amid a probe of secretive Swiss accounts.
Besides financials, top drags included energy companies and big manufacturers. Industrial bellwether General Electric, which also has large financial exposure, slipped under US$10 and continued to be battered along with the banks. Stocks are off 44% for the year to date. General Motors fell more than 13%, with its market capitalisation falling under US$1 billion intraday. By the end of trade, General Motors was the second-worst performer on the Dow as investors obviously fretted about the outcome of talks between Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers. The two are slated to hold their first meeting of the Presidential Task Force on the Auto Industry and will review the plan later today that GM submitted earlier this week.
Option expiries also added to the turmoil, with traders scrambling to settle expiring options and open new ones, a process that often adds volatility. The VIX jumped 4.2%, climbing above 49. Among other things, the volatility levels saw investors pile into gold.
Gold traded up through the magic US$1000/oz mark last night for the first time since March last year, peaking at around US$1005 when stocks hit their nadir. Some reassurance that the Obama administration did not wish to see banks ultimately nationalised pulled stocks back from the brink, and thus gold fell back to be up US$19.10 to US$993.20/oz on the session.
Given the volatility and negative sentiment for equities, Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.77% from 2.81% Thursday.
Last night saw the release of the January CPI, which rose 0.3% on the headline and 0.2% core (ex energy and food). Economists expected only a 0.1% gain – the first increase in CPI since July last year when oil fell out of bed, dragging all other commodity prices with it. Despite the tick up, the CPI is now flat year-on-year. The last time such a flat reading was posted was in 1955.
Crude prices were yet another of the day’s victims, falling as the deteriorating global economic outlook continued to weigh on the market. US crude futures for March delivery, which expired Friday, settled at US$38.94 a barrel, down US54c, after posting the biggest settlement gain since December 31 in the previous session. The price was down as far as $38 a barrel earlier in the day, but trimmed losses after the comments from the White House. The April delivery contract, which becomes the benchmark as of Monday, closed at US$40.08/bbl.
There were still few signs of life coming from base metals and while they largely managed to hold above their lows during late Friday LME trading, prices still finished lower across the board. As you can guess, sentiment was still overwhelmingly negative. Basemetals.com notes that Aluminium was the day’s biggest loser, dropping to levels that were last seen more than six years ago, with stockpiles continuing to climb. But it wasn’t without company, as all other metals racked up lows as well. Losses were in the region of 2.4% to 4.2%.
The US dollar was weaker, with the Dollar Index falling 1.1%. The Aussie traded higher to US$0.6459.
The SPI Overnight belied Wall Street and rose 3 points.
