Daily Market Reports | Oct 17 2009
By Andrew Nelson
The Dow was down 67.03 points, or 0.7% to 9995.91, while the S&P 500 gave up 0.81% and the Nasdaq declined 0.76%.
Yesterday’s patchy gains that left the market at a one-year high were gone at market open, bringing the Dow back down below 10,000 after closing above the mark for two straight days. A run of disappointing earnings reports weighed on the market, with stocks also hurt by a surprise drop in consumer sentiment.
Major indexes finished the week in positive territory, making it two straight weeks, but the pace of the advance in general has slowed of late. The S&P 500 was up 1.5% for the week, the Dow picked up 1.3% and the Nasdaq finished 0.8% higher.
Results over the week were mixed, with earnings largely beating estimates and revenues mostly in line. Goldman Sachs, Intel and Google were among the companies that impressed, while Citigroup, GE and Bank of America were among the companies that disappointed. Next week brings another who’s who list of corporate results, including Apple, Coca-Cola, Wells Fargo, Morgan Stanley, American Express and Microsoft.
And it was certainly earnings reports that weighed on today’s market. International Business Machines fell 5%, making up for more than half of the decline in the price-weighted Dow. IBM posted third-quarter earnings that were above expectations after market close yesterday, but the tech giant also suggested that businesses remain reluctant to start spending again. So despite its FY09 forecasts coming in above the market, investors remained focused on the lower revenue.
Also putting pressure on the Dow were a big quarterly loss from Bank of America and a decline at General Electric’s financing arm that served to cast a shadow on what has been positive sentiment on banks of late. The bank reported a US$1bn third-quarter loss, with consumer credit problems more than offsetting strength in the company’s wealth management business. All up, BoA reported a loss of US26c per share, with the market expecting to see something around the 21c per share mark. Shares were down 4.6%.
General Electric also reported weaker quarterly earnings and while they beat estimates, the accompanying lower revenue levels, which were down 20%, certainly missed. The US conglomerate and major Dow component was hurt most by its GE Capital financing arm, although the company did say it benefited from cost-cutting and some strength in select units. Management also confirmed it is starting to see signs of stabilisation along with the overall economy. Still, the comments weren’t enough to help the shares much, with prices falling almost 5% on the day’s trade.
Weak consumer sentiment data also pressured the market on Friday and overshadowed an earlier report that showed industrial production had increased 0.7% in September, beating expectations. However, the Reuters/University of Michigan consumer sentiment index fell to 69.4 in a preliminary reading for October. The read was down from 73.5 in September and shows that John Q Public is still nervous about jobs and the economy and will thus hold off on spending.
It wasn’t all bad news however, with internet big-shot Google beating on both profit and revenue on numbers from its report released after hours yesterday. In fact, the company booked its strongest sequential revenue growth in more than a year, as advertising is now starting to improve. CEO Eric Schmidt said he thinks the worst of the recession is behind us, with management comfortable about investing heavily in the company’s future. Shares were up more than 3%.
Shares of supermarket chains were stronger and picking up speed in late trade, while Halliburton also had a good day, with shares rising 1.8%. Third-quarter earnings slumped 61%, but the company posted its first sequential quarterly revenue increase this year.
With stocks pretty much lower across the board, the US dollar was able to buck its recent downward spiral as investors fled from risk in search of safer havens. The greenback advanced versus the Aussie, euro and Japanese yen and was also helped by data that showed gains in foreign funds flowing to the US.
Despite the stronger US dollar, gold was able to erase some early losses, ending a little higher after the bigger than expected drop in consumer confidence helped drive down markets and spark a bit of risk aversion. The price was up US$3.40/oz to US$1052.40, gaining in eight out of the past nine weeks now.
Crude oil also shrugged off the stiffening US dollar and after trading lower for much of the day, the price was up 94c at US$78.52 a barrel in New York. It was a record one-year high. That makes it seven straight days of gains for black gold, with the price running 11.5% higher over that period. The price would have certainly been helped by the jump in industrial production, while yesterday’s big drop in gasoline inventories would also have helped, despite the limited use of the data [see yesterday’s Overnight Report for an explanation].
There was little action reported in the base metals market, with industry news service Basemetals.com calling the day “lacklustre and featureless “. The website reports that the week ended on a mixed and inconclusive note, with the sideways pattern that characterised by the last two days playing itself out today.
Global markets were pretty much lower across the board as well. In Europe, London’s FTSE 100, France’s CAC 40 and Germany’s DAX were all lower. The story was pretty much the same in Asia yesterday, with the Hong Kong Hang Seng and the Japanese Nikkei both ending in the red.
Australian investors seem happy to carry the tune, with the SPI overnight down 14 points at 4836.
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