Daily Market Reports | Jan 16 2010
By Andrew Nelson
The Dow Jones Industrial Average fell 100.90 or 0.94%, while the S&P 500 ended 1.08% lower at 1136.03 and the Nasdaq booked a 1.24% decline to 2287.99.
Wall Street booked it’s biggest loss of the year, led lower by a disappointing report and a glum outlook from JPMorgan and a weak reading on consumer confidence. Major gauges managed to finish off their worst levels of the day, but bank shares were still down around 2%, while declines in industrials and technology stocks added to the weight of selling.
JPMorgan finished 2.28% lower after positing a top line EPS result of US74c per share, which easily beat expectations of US61c. However, weak top-line revenue and continued credit losses left investors wanting to see a bit more from the banking giant. It was as if the clock were wound back nine months, with many worried that the credit losses in particular could be pointing to some longer-term trouble for the bank, especially if charge-offs and commercial credit defaults keep piling up.
We are now at the downhill end of US quantitative easing, rates are going to go higher sooner or later, although unemployment is still at 10%. If the bank’s credit losses are US$1 billion this quarter, many are thinking, given the current environment, things are just going to get worse. Other big financial shares slipped too, including Bank of America, Goldman Sachs, Morgan Stanley and Wells Fargo, with the KBW Bank index sitting down 1.9% by the end of trade.
Investors also sold shares of Intel, sending the stock down 3.17% despite the company reporting a quarterly profit of 40c per share, which was 10c above estimates. The premier chip maker also issued a fairly bullish outlook, but the market was worried there may not be more room for the stock to climb after what was the company’s most profitable quarter in history.
The day’s economic data did little to inspire any confidence, with the latest reading on consumer sentiment coming in worse than expected. That said, data on manufacturing in the New York region were surprisingly strong, while results for consumer prices and industrial production were at least in-line with Wall Street’s forecasts.
The University of Michigan’s consumer sentiment index rose to 72.8 in January from 72.5 in December, but the market thought it would rise to 74. The Consumer Price index (CPI), which is a key measure of inflation, rose 0.1% in December versus forecasts for a rise of 0.2%. Core CPI, which strips out volatile food and energy prices, rose 0.1%, which was in-line with estimates. The Empire Manufacturing index showed that manufacturing activity in the New York area bounced back in December, rising to 15.9 from a revised 4.5 in the previous month. Economists had thought it would only climb to 12.
But you have to wonder – if consumer confidence is rising, albeit slower than hoped for, and if key economic reads are coming in better than forecast, while big name companies like JP Morgan and Intel are beating earnings estimates just to have the market react the way it did – maybe we’re looking at the beginning of a correction that an increasing number of pundits have been predicting.
Despite the mixed economic news and trouble in the banking sector, the US dollar was stronger, gaining especially against the euro on continued concerns about Greece’s fiscal situation and rumours (duly denied) that German Chancellor Angela Merkel was getting ready to step down. The greenback was also well up on the UK pound and Aussie, but it did slip against its Japanese counterpart.
Europe’s main markets also closed in the red after banking shares there also sank, giving up earlier gains. The German DAX dropped more than 100 points, down 1.9%, while the France’s CAC 40 slipped 1.5% and the FTSE ended the day 0.8% lower.
Commodity prices slumped as the US dollar turned higher, with gold also hit by concerns about China’s moves to cool its economy as well as the tame US inflation report. The metal was down just over 1%, or US$11.50/oz to US$1,130.30/oz, while silver slipped 1.5% to US$18.39/oz.
Oil capped off a woeful week with another woeful day, dropping for a fifth consecutive day on forecasts for weak demand by the International Energy Agency and expectations of warmer weather in the US. By the end of trade, crude oil for February delivery had fallen US$1.67, or 2%, to US$77.72 after being down as low as US$77.69 a barrel earlier in the day.
In London, base metals went the same way, losing ground throughout the day on concerns about the poor start to the US corporate earnings season, which added to the ever present doubts about the pace of the US economic recovery. However, much of the downside was expected, as the day marked the end of annual index rebalancing. This is when the two major commodity indexes, the Dow Jones-UBS and the S&PGSCI, adjust their asset weightings over a rolling five-day period.
In Australia overnight investors looked to take their lead from offshore markets, with the SPI 200 March 10 contract down 29 pts or 0.6% at 4842.
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