Daily Market Reports | May 23 2009
By Andrew Nelson
The Dow finished down almost 15 points, or 0.18%, while the S&P 500 slipped 0.15% and the Nasdaq ended 0.19% lower.
For most of the day stocks looked like ending what was a volatile week higher, with traders latching on to defensive stocks like consumer-staples and utilities, while a positive surprise from Sears after the close yesterday lifted its shares and supported the broader retail sector. But fears the US could be put on “negative watch” by S&P continued to hold sway, especially after the ratings agency downgraded the UK outlook to “negative” from “stable” before the open yesterday.
The market was given a bit of relief after Moody’s suggested that a downgrade for US credit is not imminent, but it just wasn’t enough. After spending most of the day comfortably in positive territory, the Dow shed points heading to the close, with sellers, especially of financial stocks, easily able to muscle aside the buyers in relatively thin and volatile trading ahead of the Memorial Day holiday weekend. Both US and UK markets are closed on Monday. Reflecting the volatility and increasing nervousness in the market, the VIX finished above 32 after trading as low as 26 earlier in the week.
It was the Dow’s fourth straight loss, but it still managed to end the week with a gain thanks to a 230 point rally on Monday due to some increasing signs of life in the US housing market and bullish analyst comments on the banks. A disappointing outcome from the latest phase of the Federal Reserve’s Treasury-purchase program, a credit downgrade for the UK and talk of the same fate for the US (which are all well explained in yesterday’s Overnight Report) ensured that most of Monday’s gains were wiped away by the close today.
There was little in the way of economic news, but what there was certainly wasn’t helpful. Philadelphia Federal Reserve President Charles Plosser gave the market some clear cause for concern yesterday when he said the Fed’s various economic stimulus programs put the central bank’s independence at risk and opened the door to future inflation. Next week will be much more of litmus test for the US economy, with a big basket of housing figures, consumer confidence reads and Q1 GDP (revised) all due out over the course of the week.
General Motors remained in the limelight, but this time for all of the wrong reasons. The stock had been the biggest percentage gainer on the Dow for much of the week, but tumbled to the bottom of the pack today after GMAC said it could take the government 17 years to shed its investment in the auto and mortgage lender if it goes public. Shares plunged 25% in afternoon trade. However, it looks like investors will have to wait until next month to hear whether GM will follow Chrysler into bankruptcy.
Sears Holdings gave a big boost to the retail sector, with shares running 11% despite the down market, after the company booked a surprise first-quarter profit amid cost cuts and tighter inventory controls. Another standout was teen retailer Aeropostale, which reported an 81% profit rise in its first-quarter results, setting a company record. It’s shares rose 3.6%.
Energy stocks also advanced, tracking rising oil prices, with crude remaining solidly above US$60 a barrel. Crude oil futures rose US62c, or 1.02%, to US$61.67, ending with an 8.2% gain on the week. Oil has gained in three of the last four weeks and is up 21% so far this month. Gasoline prices were also significantly higher, eyeing a new 7-month high ahead of the holiday weekend and the fleet of motorists that are expected to take to US highways over the long weekend.
The US dollar continued to push lower against the Aussie, euro and the pound, carrying on with the sharp declines from Thursday. The US Dollar index is now sitting at its 2009 low. These aforementioned credit rating concerns were especially in play here, given the US has borrowed heavily to finance its aggressive efforts to turn back the financial crisis. No surprise then that US Treasuries were also under pressure, with the yield on the 10-year note climbing to a 6-month high.
Gold continued to win on the back of these problems for the greenback and US government debt, with prices rising US$4.10/oz to US$956.80/oz.
Base metals also rode the low US dollar wave, finishing close to intraday highs on LME trading, with the exception being a soggy aluminium market. Basemetals.com reports that gains were inspired by a few more factors than just US dollar weakness, with generally steady equity markets and bursts of technical buying and covering ahead of the long weekends in the US and UK also helping out.
Closer to home, the SPI finished 3 points lower at 3772, giving few answers as to how the week will start in Sydney.
