Daily Market Reports | Jul 14 2009
By Greg Peel
The Dow jumped 185 points or 2.3% while the S&P rose 2.5% to 901 and the Nasdaq added 2.1%.
While employed by Oppenheimer & Co, banking sector analyst Meredith Whitney became the credit crunch poster girl by being a stand-out bear – and significantly so – from the beginnings of the subprime crisis, and then ultimately being correct. So popular did she rapidly become that she left Oppenheimer to start her own exclusive financial sector analysis firm. Today, Wall Street hangs on her every word. Few private sector individuals have the capacity to move markets with a single comment – Warren Buffet is one, George Soros perhaps another -and Whitney has now joined that team (at least until she gets it wrong).
Last night Whitney surprised by upgrading Goldman Sachs from Neutral to Buy. She further confused the market by suggesting basket case Bank of America was inexpensive given the value of the assets on its books. Suddenly those remaining on Wall Street and not currently on a beach, ahead of the real surge in earnings reports, began to query three weeks of stock market weakness and a growing feeling that perhaps the rally had been a mistake. Shorts were hastily covered and sidelined money was reinvested, and within two hours of the morning session Wall Street had reached almost to its highs of the day. And they were held.
Such a rapid rally is not a great surprise in this market, and is no reliable indicator that overall strength has now been reclaimed. It’s a blip, on summer-light volume. But it does go to show the level of uncertainty that remains in what had appeared recently like a market which had drifted into resignation. So hastily did investors sell out of the put option protection they had begun to load back up on that the VIX volatility index collapsed over 9% to 26.
The timing of Whitney’s comments was influential, given Goldman Sachs reports second quarter earnings tonight. Bank of America, JP Morgan and Citigroup also report this week. The banking sector index leapt 6.5% last night. Having moved the goal posts, Whitney will be hoping those reports still kick goals.
The stock market may have whipped itself into a frenzy, but there was little follow-through elsewhere. Such a rally in stocks should imply a switch back into risk trades, which implies selling off the US dollar and US bonds and buying commodities. The dollar did end marginally lower on the index to 80.04, but rallied against the yen. The ten-year Treasury bond was actually sold, gaining about 5bps in yield to 3.34%.
Oil, which has been an influential driver of recent stock market weakness, also fell further despite the rally. It closed the session down US20c to US$59.69/bbl. Base metals also shrugged off Wall Street despite almost all the rally occurring within the London session. Copper and nickel edged slightly higher but others fell, with zinc down 3%.
The Aussie has been weak lately and clawed back near half a cent to US$0.7844 from Friday in New York. Gold really doesn’t know whether it’s Arthur or Martha at the moment, and decided to rally US$7.80/oz to US$919.90/oz on the US dollar’s fall while ignoring the supposed reduction in risk implied by the stock market.
There were no major economic data releases last night or other developments of note, leaving Whitney’s comments within a vacuum. The S&P 500 did clip 875 when the market initially opened lower, which is yet another technical level. There are about 20 different “technical levels” between 850 and 900 it would seem, just to confuse the issue, and many on Wall Street have argued that the weakness of the last couple of weeks would be only temporary as sidelined buyers find an entry level they’re comfortable with. 875 seems like a good enough point as any, even though most believe 850 will be tested, and it was appropriate that the S&P chose to stop just above 900.
But strap in – the US earnings season is only just beginning to hot up. A lot could happen from here and probably will.
The SPI Overnight was up 58 points or 1.6%.
