Daily Market Reports | Apr 09 2009
By Greg Peel
The Dow closed up 47 points or 0.6% while the S&P fared much better, up 1.2%, and the Nasdaq added a healthy 1.8%.
Last night the Dow opened higher, then fell into the red by 11am, then rallied to a session peak up 98 at 1pm, then fell to a session low down 39 at 3pm, then rallied to the close to finish up 47.
Welcome to earnings season.
The buzz words for this season already appear to be “less bad”, implying that investors are wanting a reason to buy, wanting to say we’ve seen a bottom, and taking any bad but non-catastrophic result as very positive. Take, for example, three stocks which reported in Tuesday’s after-market that I mentioned yesterday.
The Alcoa CEO stated plainly that the fall in aluminium prices and the fall in aluminium demand over the first quarter were the worst in his experience. Alcoa reported a US59c loss, worse than the Street’s US56c loss estimate. Alcoa shares finished 3.5% higher last night. Fertiliser producer Mosaic was expected by the Street to do better than its result suggested. Its shares fell 9% in the after-market but closed up 6% last night (implying a 15% turnaround). Bed, Bath & Beyond on the other hand, posted a surprisingly good (meaning not bad) result for a retailer. Last night its shares finished 24% higher.
How bad will a result have to be for the Street to sell?
There was more going on last night than just earnings, however. The minutes of the March Fed meeting were released, revealing that the Fed now sees the recession becoming deeper and lasting longer than it had previously forecast. Mind you, the Fed has been behind the curve all the way so far. It now sees unemployment will rise more steeply (from the present 8.5%) into 2010 before beginning to flatten out. Such forces would weaken the economy even more, the Fed noted, triggering further credit tightening and additional losses at financial institutions. Hence the Fed decided to throw another US$1.2 trillion at mortgages and small business consumer loans.
The Fed minutes caused the banking sector to finish lower last night despite the S&P’s 1.2% gain.
On the flipside, life insurance companies all received a boost following a Wall Street Journal article suggesting the US government might extend TARP funds to the sector on the basis that many insurers have bank holding company status. Home builders received a boost when two of them announced a proposed merger. And a rise in mortgage applications was heartening.
Again the after-market has come into play however, with shares in construction and engineering company Shaw down 9% as I write on an earnings miss.
Also affecting the market last night was the SEC’s proposal announcement regarding the uptick rule, delivered as flagged. The SEC offered no less than five separate proposals aimed at curtailing destructive short-selling activity, one of which was the rule previously in place before June 2007 and the others four variations on a theme. The proposals are now open for 60-days of comment.
Despite high volatility in a low range on the stock market last night, the VIX fell a solid 4% to close at 38.8 – meaningfully under 40 for the first time. There’s a long way down to fall before one might suggest confidence is brimming, but it’s a start. However, a fall in the VIX last night has as much to do with Wall Street seeing the SEC getting real about curbing volatility as it was about bullishness in stocks. The VIX is, after all, the volatility index.
The US dollar finished slightly higher, attributed to the fact the Fed board was most emphatic in agreeing Treasury purchases (quantitative easing) were necessary. The Aussie jogged on the spot at US$0.7103. Gold slipped back slightly, losing US$2.10 to US$880.00/oz.
Despite the slight rise in the US dollar, commodity prices also edged up. Oil was up US23c to US$49.38/bbl, while base metals prices were mostly 1% higher.
The SPI Overnight gained 45 points or 1.2% after its capitulation yesterday.
Today in the Australian market is a half-day only. Tonight in the US is also a half day. Australia and Europe are closed on Monday but the US is open. FNArena will post an Overnight Report tomorrow (for what it’s worth) but will otherwise break until Tuesday morning. Happy Easter to all.
