Daily Market Reports | Oct 31 2009
By Andrew Nelson
The Dow closed nearly 250 points, or more than 2.5% lower, while the S&P 500 sank 2.8% and the Nasdaq gave up 2.5% as well.
Stocks dropped on Wall Street, more than erasing the previous session’s gains on the euphoria of a third-quarter GDP read that was far better-than-expected. Investors dumped a wide spectrum of shares at the end of a tough week that closed out a roller coaster month.
The Dow was flat for the month, but it was still the worst one-day percentage loss for the average since July. The S&P 500 and Nasdaq were both lower on the month, bringing the run of seven straight months of gains to an abrupt end.
The day’s sell-off was broad based, with all 30 Dow components losing ground, while the VIX volatility index, which is also known as the market’s fear index, shot up more than 25%. The sectors that have led the recent rally pulled back today: Financials, materials and energy were all down more than 3%.
From the time it bottomed at a 12-year low back in March, the S&P 500 had managed to rally 57.6% as of yesterday’s close. But as we’ve seen through the course of this month, the run had already started to slow to fits and starts before running out of puff about a week ago. Since peaking on Oct. 19, the S&P 500 has lost 5%, with the enthusiasm about the better-than-expected quarterly results that were flowing through, and yesterday’s surprise beat on GDP, finally giving way to renewed concerns about the pace and sustainability of the recovery.
There’s no better indicator of the indecision that is returning to the market than the Chicago Board Options Exchange’s volatility index, or VIX,which jumped to its highest level in nearly four months. The gauge has once again pushed past the 30 mark, which is seen as the level that traditionally indicates heightened concern -or the be more blunt, fear- among traders.
However, there was some speculation that a quote-delay issue at the New York Stock Exchange, which was eventually fixed, may have prompted at least some of this volatility before lunch. The end of October is also the end of the fiscal year for a number of mutual funds and hedge funds, so last-minute rebalancing may also have added to the volatility.
The day saw a fairly heavy load of economic news dumped on the market, and while for the most part it was either in-line or slightly above expectations, there certainly wasn’t anything positive enough to help improve the mood or offset the growing sense of doubt.
US personal income was unchanged in September, which was in line with expectation. Personal spending fell by 0.5%, but this was also as expected. The core personal consumption expenditure (PCE) read, which is the report’s inflation component, rose 0.1%, but was still a little bit better than anticipated.
The Chicago PMI, a regional US read on manufacturing, rose to 54.2 in October from 46.1 in September. This is noteworthy, as anything above the 50 mark signifies expansion. And with economists expecting a rise to just 49, this read was also a beat. Last, but certainly not least, the University of Michigan’s consumer sentiment index was revised up to 70.6 from 69.4 earlier this month, again slightly above expectations.
The weakness of Dow’s financial components was especially noteworthy, with Bank of America and J.P. Morgan Chase down 7.2% and 5.8%. Not helping matters for the financials were comments from Calyon Securities banking analyst Mike Mayo, who said that Citigroup is likely to write down about US$10bn in deferred-tax assets in the fourth quarter. As a whole, the financial sector was down 4.7%.
In reporting news, Dow component Chevron reported a 51% drop in quarterly profit due to lower oil and gas prices. Yet while earnings beat analysts’ expectations, revenue didn’t and shares fell 1.8%. The disappointment was felt across the entire energy sector. Energy heavyweights Halliburton, Schlumberger and Exxon Mobil, which missed on earnings yesterday, all booked 3-4% losses on the day.
The continuing recovery in the US dollar also put plenty of pressure on materials stocks, with the sector down 3.8%.
The US dollar index jumped 0.6%, with investors once again buying in to the safe-haven argument. The greenback gained versus the Aussie, yen and euro, after falling to a 14-month low against the latter last week. Treasuries, which are another area that investors tend to flock to for safety, were also higher, with the US 10-year note jumping 27/32 to push its yield down to 3.396%.
Gold was weaker, but only by US50c to US$1046.30 an ounce, with the heavy metal holding on to most of the advance that it built up in October. While fighting a stronger US dollar, gold’s value as an alternative safe-haven stemmed its fall.
The stronger US dollar was a much larger influence on crude oil, which lost US$2.87, or 3.6%, to finish at US$77 a barrel. Still, oil has gained 9% in October, helped by what had been up until the past few days a weakening trend in the dollar that was supported by hopes of a resurgence in global economic activity. But the dollar’s rising and hopes are fading and oil is losing at least some of its appeal.
Base metals in London, much likes stock in New York, readily gave back yesterday’s gains. The firming US dollar played its part, but basemetals.com reports that the absence of anticipated follow through covering for month-end also added to the weakness. Add to that the fact that there were increases in warehouse stocks of five of the six primary LME metals, and it was always likely that the complex would have a bad day. Zinc fared the worst on the trend of rising global inventories, shedding around 4%, the rest of the complex was down between 2%-3%.
Overnight jockeying in Sydney mirrored the move on Wall Street, with the SPI 200 dropping 118 points, or 2.5% down to 4506.
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