Daily Market Reports | Jan 23 2010
By Andrew Nelson
The Dow Jones Industrial Average fell nearly 217 or 2.1% to 10172.98, while the S&P 500 dropped 24.72 pts or 2.2% and the Nasdaq sank 60.4 pts or 2.7%.
Stocks dropped for the third straight day on Wall Street overnight, closing just off the day’s lows as uncertainty about a number of issues continued to take a heavy toll on market confidence. Whether you put the blame on China concerns, President Obama’s plans for bank regulation, uncertainty about the future of Fed chairman Ben Bernanke, or the relatively high valuations, you could probably pick any two and still have a similar outcome.
All up, market breadth was decidedly negative on the New York Stock Exchange, with losers beating winners by three to one on a volume of 1bn shares. On the Nasdaq, decliners outscored advancers by more than two to one on a busy volume of 2.21bn shares changing hands.
To be fair, stocks were vulnerable to a pull-back after surging 3% in just over two weeks, with the major gauges having touched 16-month highs on Monday. And right on cue, the selling began on Wednesday after reports that China has asked banks to slow the pace of lending this year in an attempt to get ahead of inflation.
The selling picked up pace on Thursday and Wall Street booked its worst day in months after US President Obama spooked the market by asking Congress for limits on how large big banks can be. He also aims to end some of the in-house trading that large financial companies have employed in recent quarters to boost their bottom lines.
The selling picked up pretty much where it left off yesterday and gathered pace as the day progressed on the uncertainty brought about by news that Ben Bernanke might not get confirmed to a second term as Federal Reserve chairman. Volumes increased towards the close and the VIX, known as Wall Street’s fear gauge and also a key measure of market volatility, jumped another 6.2% to 27.31, making it a 32% increase for the week and its biggest three-day run-up since February 2007.
For the week, the Dow was down 4.1%, losing 5.2% over this three-day slide. The S&P 500 plunged 3.9% for the week and the tech-laden Nasdaq Composite Index ended down 3.6% for the week, although it was the day’s worst performer. The tech gauge was hurt in part by a 5.7% tumble in Google, despite the Internet giant’s surge in fourth-quarter earnings. Yet while the company’s earnings and revenue beat expectations by a comfortable margin, it seems investors were looking for more.
Also taking a toll on the tech sector was news that Citigroup had cut its ratings on seven semiconductor-equipment stocks, citing the risk of a correction of as much as 30% in the sector over the short-term.
Financial stocks extended the previous day’s steep losses, with Goldman Sachs down 4.2%, while Bank of America was off 3.7%. American Express dropped 8.5% despite a tripling in its quarterly net income. The company’s report easily beat Wall Street estimates, but still fell short of investor expectations. As may be the case with many stocks, the market had priced in the upside a while ago, leaving investors hungry for more.
There was some good news on the earnings front, or rather good news that was accepted as being good news. Dow components General Electric and McDonald’s both beat expectations, with GE topping expectations for both earnings and revenues after cost-cutting measures helped offset sluggish demand for jet engines and other heavy equipment. Meanwhile, McDonald’s pipped forecasts for both earnings and revenues after global same-store sales rose 2.3%. Shares were up in the neighbourhood of half a percent for each.
The fact of the matter is that it has been a decent earnings season so far. About a quarter of the S&P 500 has reported to date and around 80% percent of the companies reporting have beat expectations. But the recovery in the share market that we’ve been watching for the last nine-months has been banking on this recovery, hitting target is well priced in, and it’s becoming increasingly obvious that anything short of serious over delivery (and in some cases even that) just isn’t enough right now.
There was another cloud building on the economic front after a report showed that December jobless rates rose in 43 states and the District of Columbia over the previous month. The read was a stark reversal from November, when a majority of the states saw unemployment rates dip from the prior month.
Looking to next week, Apple, Amazon, Ford, Microsoft and Chevron are among the companies reporting. Apple is also expected to debut a highly anticipated tablet computer next week. On the US economic calendar, reports are due out on existing-home sales, consumer confidence and GDP, just to name a few. The Fed also meets next week, but it isn’t expected to make much of a change to its statement or to raise rates.
The US dollar only gave back a little piece of the gains it was able to salt away earlier in the week. The Obama administration’s hotly debated plan to limit the size of the nation’s largest banks and the types of trading activities they could engage in certainly didn’t help the greenback. Still, the dollar was able to hold on to a 2% increase versus the euro and 1% against a basket of currencies for the week as investors turned away from riskier assets on continued concerns about Greece’s financial problems as well as the likelihood of China trying to curb its economic growth.
On the day, the US dollar index was down just 0.06%, posting a slight gain on the Aussie, but still weakening against both the euro and the yen. Treasury prices lost ground, raising the yield on the 10-year note to 3.60% from 3.69% late Thursday. Note: Treasury prices and yields move in opposite directions.
Spot gold finished the day down US$3.90/oz on those same concerns that China’s moves to curb lending will dampen growth. This in turn takes a bit out of the metal’s appeal as a hedge against weak currencies and inflation. Silver, on the other hand, dropped a more substantial 2.2% and as a more industrial based metal, suffered more than gold on those China fears.
It was a similar story for oil, with futures dropping below US$75 a barrel and booking a better than 4% loss for the week on a slowing China and concerns over weaker energy demand after disappointing weekly data from the US Energy Department. Crude oil for March delivery dropped US$1.27, or 1.7%, to US$74.81 a barrel, with the contract hitting an intraday low of US$74.52 a barrel earlier in the day.
It was a down and up day for base metals in London, with the complex picking itself up off the floor in mid-day trading and bouncing back to keep pace with market-leader copper, as funds reportedly took advantage of the earlier sell-off as a buying opportunity. By the close of what was a fairly hectic session, copper rallied 1.7% to US$7,390/t from what had been its lowest level since late December. The move pulled zinc and aluminium away from six-week lows and brought lead from an eight-week low.
It was unsurprisingly a down day in Europe as well, although to a lesser extent. The UK’s FTSE gave up 0.6%, Frances CAC-40 was down just over 1%, while the German DAX was down 0.9%.
Australian investors seemed to be receiving the message load and clear, with the SPI 200 March 10 contract losing 87 pts to 4619 and setting the stage for what will likely be a very interesting week when traders return on Monday.
Greg Peel will return after Australia Day.
[Note: All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts in the Cockpit and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.]
