Market Update 071212 http://biz.yahoo.com/mu/update.html 4:25 pm : Stocks started the day sharply higher fueled by news that the Fed has a plan to address liquidity issues, but eventually lost steam as negative developments out of the financial sector weighed on the broader market.
The swings were huge today. The Dow was up 272 points at its peak and was down 111 points at its trough. In the end, the Dow managed to finish with a modest gain (+41 points), as did the broader indices.
In regard to the Federal Reserve news, the Fed announced before the open that it will be coordinating with the Bank of Canada, Bank of England, European Central Bank, and Swiss National bank to add liquidity through term funds auctions and foreign exchange swap lines. The news provided a boost to the equity markets.
The auctions allow the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations.
The plan is more ambitious than added easing in the funds or discount rates. The operations are open to thousands of banks rather than the 20 or so primary dealers involved with the daily Fed operations. In addition, there should be no stigma against these operations as, like it or not, discount borrowing from the Fed still carries the presumption of troubled borrowing, leaving hesitancy from the market.
With regard to the financial sector (-0.9%), there were several headlines that attributed to their poor showing today despite the seemingly positive Fed news. Today's decline follows the sector's 4.9% plunge yesterday after investors were disappointed with the Fed's decision to only cut rates by 25 basis points.
Bank of America (BAC 43.43, -1.22) said it expects quarterly results to be disappointing. The company expects write-downs will be larger than previously reported, and said final write-downs of collateralized debt obligations are "unknowable." The bank expects to have a fourth quarter profit, but said it may not be able to resume its planned stock buybacks until 2009.
Wachovia (WB 40.53, -1.42) said it now expects fourth quarter 2007 provision expense to be $1 billion higher than charge-offs.
There were reports that Morgan Stanley picked Citigroup (C 31.47, -1.76) as a stock to sell short. The reports indicate Morgan Stanley believes Citi's earnings are deteriorating, that it expects new management to deliver a dividend cut, and that it expects further hybrid issuance, diluting current shareholders.
Student lender SLM Corp. (SLM 28.49, -3.45), better known as Sallie Mae, has guided fourth quarter and FY2008 earnings below the current consensus estimate. SLM also stated that the J.C. Flowers led buyout group has indicated it no longer wants to pursue opportunities to acquire the company.
To top it off, JPMorgan Chase (JPM 46.15, +0.21 ), Bank of America and Wachovia were downgraded at Merrill Lynch based on credit risks.
Eight sectors traded higher. Energy (+2.4) provided leadership as it rose in conjunction with crude oil prices, which rallied 4.3% to $93.86. The government's weekly report showed crude inventories declined in-line with expectations, but managed to make gains after Goldman Sachs raised its average 2008 forecast on oil to $95 from $85 per barrel.
Telecom (+3.1%) was also a standout after AT&T (T 41.71, +2.25) extended its gains from yesterday as investors continue to embrace its dividend hike and buyback plan.
3:30 pm : A steep drop sends the major indices into negative territory for the first time today. Currently, there is no apparent news item that would account for the decline, as it may be a technical based trade. The slide has been broad-based, but financials (-2.4%) and consumer discretionary (-1.0%) are taking the brunt of the selling pressure. Five of the ten sectors are now trading in the red.
The major indices have had substantial intraday swings today. The S&P was up 2.3%, or 34 points, at its intraday peak, and is now down 0.1%, or 1.5 points.
Tomorrow, there are several economic reports, including retail sales, Producer Price Index, weekly initial claims, and business inventories.DJ30 -42.36 NASDAQ -1.40 SP500 -1.50 NASDAQ Dec/Adv/Vol 1201/1752/1.32 bln NYSE Dec/Adv/Vol 1320/1804/911 mln
3:00 pm : The stock market is holding within its afternoon intraday range.
Commodities, as measured by the CRB Index, have rose 1.6% this session. Energy (+4.4%) paced the gains, with crude oil advancing $3.85 to $93.77.
Crude's strength is attributed to Goldman Sachs raising its average 2008 forecast on oil to $95 from $85 per barrel.
Also, there is speculation that the Fed's plan to improve liquidity may spur economic growth, which in turn, would increase oil demand.
The dollar has slipped 0.1% against a basket of leading currencies. DJ30 +68.04 NASDAQ +24.41 SP500 +10.78 NASDAQ Dec/Adv/Vol 1201/1752/1.32 bln NYSE Dec/Adv/Vol 1320/1804/911 mln
2:30 pm : Stocks are back on the decline as they fall toward their worst levels of the session. Gains are still large, but remain well below intraday peaks.
At the NYSE, advancers outpace decliners by a 4-to-3 margin. The Nasdaq comes in at a 3-to-2 margin. DJ30 +63.73 NASDAQ +24.97 SP500 +10.54 NASDAQ Dec/Adv/Vol 1201/1752/1.31 bln NYSE Dec/Adv/Vol 1320/1804/911 mln
2:00 pm : The major indices are stabilizing as the head sideways modestly above their worst levels of the session.
20 Dow components are trading higher, led by 3M (MMM 87.34, +2.69). 3M announced today it anticipates double-digit earnings growth in 2008, resulting in a profit forecast that exceeded Wall Street's estimate.
Boeing (BA 86.76, -1.94) is the main laggard after being downgraded to Equal Weight from Overweight at Morgan Stanley.DJ30 +98.76 NASDAQ +30.79 SP500 +15.23 NASDAQ Dec/Adv/Vol 1201/1752/1.32 bln NYSE Dec/Adv/Vol 1320/1804/911 mln
1:30 pm : Selling pressure eases a bit as the indices regain some lost ground. The stock market is posting a large gain, but remains well off its highest levels of the session that were reached shortly after the opening bell.
Airlines are overwhelmingly underperforming the broader market this session, as indicated by the 2.7% decline in the Amex Airline Index. Morgan Stanley downgraded the airline sector to Cautious from Attractive and downgraded a number of individual airlines. The 4.0% spike in crude oil prices is not helping things either.DJ30 +81.84 NASDAQ +27.30 SP500 +12.09 NASDAQ Dec/Adv/Vol 1264/1663/1.18 bln NYSE Dec/Adv/Vol 1380/1736/838 mln
1:00 pm : Enthusiasm for the Fed's plan to add liquidity is fading. Although still posting modest gains, the Dow, Nasdaq and S&P have fallen 213, 37 and 24 points, respectively, from their session highs to their current levels.
The financial sector (-1.1%) continues to struggle as investors question whether the new plan will solve the market's liquidity woes. Consumer discretionary (-0.1%), which was also a laggard yesterday, has fallen into negative territory.
As stocks give up gains, some selling interest in bonds is fading.DJ30 +58.85 NASDAQ +22.67 SP500 +10.02 NASDAQ Dec/Adv/Vol 1211/1693/1.05 bln NYSE Dec/Adv/Vol 1197/1893/750 mln
12:30 pm : Stocks continue to slide, but remain in the green. The financial sector (-0.6%) is back in the red.
Crude oil is rallying, despite the government’s weekly inventory report showing crude inventories dropped basically in line with estimates. Crude for January delivery is up 2.8% to $92.50. DJ30 +81.20 NASDAQ +33.33 SP500 +13.46 NASDAQ Dec/Adv/Vol 1085/1831/939 mln NYSE Dec/Adv/Vol 1069/2017/682 mln
12:00 pm : Stocks are sharply higher at midday after the Fed unexpectedly announced before the open that it will be coordinating with four other central banks to add liquidity to the market.
Yesterday, investors were disappointed with the Fed's decision to cut the fed funds and discount rates by only 25 basis points, sending the S&P 38 points lower. The market has made up a little more than half of yesterday's loss.
The Fed plans to use term funds auctions that will allow the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations. The Fed also plans to utilize foreign exchange swap lines.
The plan is more ambitious than added easing in the funds or discount rates. The operations are open to thousands of banks rather than the 20 or so primary dealers involved with the daily Fed operations. In addition, there should be no stigma against these operations as, like it or not, discount borrowing from the Fed still carries the presumption of troubled borrowing, leaving hesitancy from the market.
The major indices are currently off their highs reached shortly after the opening bell, as the relative underperformance of financials (+0.1%) weigh on the broader market after several negative headlines. Yesterday, the sector was the main laggard, plunging 4.9%.
Specifically, Bank of America (BAC 43.73, -0.91) and Wachovia (WB 40.76, -1.21) warned losses would likely be larger than expected.
There are reports that Morgan Stanley is picking Citigroup (C 31.84, -1.39) as a stock to sell short. The reports indicate Stanley believes Citi's earnings are deteriorating, it expects new management to deliver a dividend cut, and it expects further hybrid issuance, diluting current shareholders.
Shares of student lender SLM Corp. (SLM 28.29, -3.64), better known as Sallie Mae, are getting clipped after the company guided fourth quarter and FY2008 earnings below the current consensus estimate. SLM also stated that the JC Flowers led buyout group has indicated it no longer wants to pursue opportunities to acquire the company.
Finally, JPMorgan Chase (JPM 45.70, -0.23), Bank of America and Wachovia Bank were downgraded at Merrill Lynch based on credit risks.
All ten sectors are trading higher with tech (+2.2%) and energy (+2.9%) providing leadership.
Bonds are being pummeled as yesterday's flight-to-quality trade gets unwound. This is also evident in the relative underperformance of the defensive oriented sectors, such as healthcare (+0.5%) and utilities (+0.8%). DJ30 +130.55 NASDAQ +43.59 SP500 +20.26 NASDAQ Dec/Adv/Vol 927/1939/801 mln NYSE Dec/Adv/Vol 905/2137/548 mln
11:30 am : The major indices continue to trade with significant gains, but remain well off their highs. The financial sector (-0.5%), which is the most influential due to its heavy weighting, has slipped into the red.
Six of its 19 industry groups are in the red, with notable weakness in thrifts & mortgages (-3.3%) and consumer finance (-1.8%).
Tech (+2.0%) and energy (+3.0%), the second and third most influential sectors, are outperforming, which is helping the market to hold onto some of its gains.DJ30 +125.91 NASDAQ +40.07 SP500 +18.15 NASDAQ Dec/Adv/Vol 859/1979/692 mln NYSE Dec/Adv/Vol 927/2219/491 mln
11:00 am : The major indices advance is still strong, but they've slid well off their highs as financials are unable to hold their gains.
Financials (+0.2%), which led yesterday's decline, are underperforming the broader market this session because of several reasons.
Bank of America (BAC 44.07, -0.58) said it expects quarterly results to be disappointing. The company expects write-downs will be larger than reported, and said final write-downs of collateralized debt obligations are "unknowable."
Wachovia (WB 41.33, -0.64) said it now expects fourth quarter 2007 provision expense to be $1 billion higher than charge-offs.
There are reports that Morgan Stanley is picking Citigroup (C 32.72, -0.51) as a stock to sell short. The reports indicate Stanley believes Citi's earnings are deteriorating, it expects new management to deliver a dividend cut, and it expects further hybrid issuance, diluting current shareholders.
Finally, JPMorgan Chase (JPM 46.80, +0.85), Bank of America and Wachovia Bank were downgraded at Merrill Lynch based on credit risks.DJ30 +123.31 NASDAQ +38.38 SP500 +17.70 NASDAQ Dec/Adv/Vol 697/2075/513 mln NYSE Dec/Adv/Vol 655/2344/364 mln
10:30 am : Selling pressure eases as the major indices regain some ground, although they continue to trade below their opening highs.
Just reported, for the week ended Dec. 7, crude inventories slipped by 722K barrels. Analysts expected inventories to decline by 750K barrels. Oil was trading up 1.9% to $91.73 just prior to the announcement.
Student lender SLM Corp. (SLM 39.65, -2.25), better known as Sallie Mae, has guided fourth quarter and FY2008 earnings below the current consensus estimate. SLM also stated that the JC Flowers led buyout group has indicated it no longer wants to pursue opportunities to acquire the company.DJ30 +192.66 NASDAQ +49.49 SP500 +25.48 NASDAQ Dec/Adv/Vol 608/2071/382 mln NYSE Dec/Adv/Vol 543/2393/254 mln
10:05 am : Stocks are still posting large gains, but have pulled back off their opening highs. The S&P is currently up 27 points, which is roughly 11 points shy of its loss yesterday.
All sectors are posting a gain, with notable strength in telecom (+3.7%) and energy (+2.9%).
Financials, up 1.4% or 5.6 points, still have a long way to go in order to make up yesterday's 4.9% or 21.1 point decline. DJ30 +214.16 NASDAQ +49.50 SP500 +27.11 NASDAQ Dec/Adv/Vol 371/2140/191 mln NYSE Vol 95 mln
09:40 am : The stock market opens sharply higher on news that the Fed has a plan to address liquidity issues.
Yesterday, stocks plunged after the market was disappointed that the Fed only cut policy rates by 25 basis points. Many expected a larger cut in the discount rate to address liquidity issues that have been evident in the wide spread London Interbank Offered Rate (LIBOR) and the fed funds rate.
The Fed has partnered with the Bank of Canada, the Bank of England, the European Central Bank (ECB) and the Swiss National Bank to establish a temporary Term Auction Facility in an attempt to improve liquidity.
Stocks have made up most of yesterday's losses, while bonds have given up most of yesterday's gains as the flight-to-safety trade is unwound. DJ30 +229.80 NASDAQ +52.49 SP500 +29.10
09:18 am : S&P futures vs fair value: +28.6. Nasdaq futures vs fair value: +36.8. Futures ease a bit from their original Fed news spike, but still point to a start that will make up a large portion of yesterday’s losses.
09:05 am : S&P futures vs fair value: +32.0. Nasdaq futures vs fair value: +44.0. Futures get a huge spike on news that the Fed has a plan to address liquidity.
08:59 am : S&P futures vs fair value: +11.3. Nasdaq futures vs fair value: +17.5. It is still shaping up to be a strong start for the stock market. Crude oil is trading up 0.9% to $90.83 ahead of the government’s weekly energy report. Bloomberg.com reports that Goldman Sachs raised its average 2008 forecast on oil to $95 from $85 per barrel.
08:32 am : S&P futures vs fair value: +11.2. Nasdaq futures vs fair value: +19.3. Trade Balance for October came in at -$57.8B, compared to last month's reading of -$57.1B. Economists expected the trade balance to be -$57.0B. Futures reaction was muted, as they continue to suggest a significantly higher start.
08:00 am : S&P futures vs fair value: +12.7. Nasdaq futures vs fair value: +22.3. Futures indicate the market is set for a rebound following yesterday’s steep decline. The impetus for the shift in sentiment is a report that the Fed may take additional action to boost liquidity in the financial markets using alternative measures such as long-term repo agreements or easing collateral rules. It was even noted that the Fed could do something more with the discount rate. There isn't a lot of other corporate news of note, although it is worth noting that crane maker, Manitowoc (MTW), provided FY07 and FY08 EPS guidance that is above current consensus estimates. On the research front, Morgan Stanley has downgraded Boeing (BA) to Equal Weight from Overweight and Merrill Lynch has downgraded both JPMorgan Chase (JPM) and Bank of America (BAC) to Neutral from Buy while taking Wachovia (WB) to Sell from Neutral.
06:04 am : S&P futures vs fair value: +9.0. Nasdaq futures vs fair value: +16.5.
06:03 am : FTSE...6483.30...-53.60...-0.8%. DAX...7965.28...-44.14...-0.6%.
06:03 am : Nikkei...15932.26...-112.46...-0.7%. Hang Seng...28521.06...-705.78...-2.4%.
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