Daily Market Reports | Jun 27 2009
By Andrew Nelson
The Dow finished down 34 points, or 0.4%, while the S&P 500 gave up 0.15% and the Nasdaq bucked the trend, pushing almost 0.5% higher.
Investors were either unwilling or unable to carry on with yesterday’s rally and the writing was on the wall early. The Dow was down from the open and a sluggish day of sideways trading really never offered any hope for a positive close. At least that was the case for the Dow and the S&P 500, but the decoupling of the Nasdaq was once again a feature, with tech stocks continuing to strengthen.
That makes it two down weeks in a row for both the Dow and the S&P 500, although the Nasdaq not only finished the day higher, but also the week.
In the technology sector, Palm led the way. Stocks in the hand-held device maker jumped 16% after the company said it would be cash-flow positive by the end of the calendar year, while its quarterly loss wasn’t as bad as many had feared. Shares in other smartphone makers also rose, including Apple and Research In Motion.
A handful of some early cyclical stocks were also on the up, as investors continued to hope for an economic recovery further out toward the end of this year, or some time early next year. US Steel and Nucor both rate an honourable mention.
However, it seems that talk Wall Street may pause for a bit of profit-taking is getting louder. CNBC reported that JPMorgan said in a research note that the S&P 500 is staring down the barrel of a correction that is likely to send the index back down to between 830 and 875. This would represent a 5% to 10% drop from current levels. That said, JPMorgan and an number of other analysts see a rally by year end that would take the S&P back up to 950 to 1000.
One thing was certain today, and that was the hope for that longed for economic recovery was dealt another blow, with mixed economic news more than partly to blame for the down day. Sure, a US government report showed personal income had surged and this would normally be heralded as great news, but not when it comes coupled with data that showed savings had increased as well.
May personal income rose 1.4%, the US Commerce Department reported, while the gain in personal spending was more modest, rising 0.3%. But at the same time, personal savings as a percentage of income jumped 6.9% in May to an annual rate of US$768.8bn, the highest level since record keeping began in 1959.
Most agree that it is the US consumer that will need to drive the economy out of recession, but the savings data make it look as if the average American is still happy to sit out the recession rather than spend. And with consumer spending fuelling two-thirds (circa 70%) of the nation’s economic growth, the steadily rising savings rate will continue to be cause of concern for economists.
There was a little bit of additional good news on the consumer front though, with a separate report from the University of Michigan showing that consumer sentiment rose to 70.8 in June from an earlier reading of 68.7. Market expectations were for increase to 69.
There was little in the form of company news to help the major gauges, with US homebuilder KB Home reporting a second-quarter loss that was worse than expected. This followed on from bad news from peer Lennar yesterday, who reported a big drop in fiscal second-quarter sales and earnings versus a year ago. But both homebuilders tried to offer a little bit of hope, saying that at least some negative trends are moderating, but not many were buying it.
UBS was one of the worst off among the banks, with shares dropping more than 5% after it said it was planning to raise US$3.5 billion in capital. While analysts said the move would be positive, there was still a lot of speculation about how long it would take for the bank to stabilise.
Energy shares also weighed as oil futures fell below US$70 a barrel on weak demand data from earlier this week, while also being pressured by news major oil producer Nigeria will halt a battle with rebels during a two-month amnesty. Dow energy bellwethers Chevron and Exxon Mobil were both down around 1.5% on the day.
All up, August crude fell US$1.07 to end at US$69.16 a barrel. That made it a 1.2% drop for the week, but for the month oil is still up more than 3%.
Renewed pressure on the US dollar helped at least limit some of oil’s losses, given a weaker greenback tends to support the prices of US dollar-denominated commodities. The dollar’s problem came from China, after the country’s central bank once again repeated its calls to lessen the greenback’s role as the world’s reserve currency.
The US Dollar Index, which measures the greenback’s value against a basket of six rivals, fell 0.7% and was weaker against the Aussie, euro and the yen.
Gold and silver were also beneficiaries of the fading US dollar, up US$1.80 and US8c respectively. But base metals missed the boat, falling back during late Friday trading on the LME. Although, reports basemetals.com, prices in the complex finished well above Monday’s sell-off lows. The exception to the rule was nickel, which actually hit a near-nine month high.
The mixed signals from New York were at least not taken as too much of a negative for Sydney, with the SPI creeping 2 points higher to 3881.
