Market Update 080130 http://biz.yahoo.com/mu/update.html 4:20 pm : Most of the excitement in Wednesday's session happened in the last two hours of trading after the FOMC decided to cut both the fed funds and discount rates by 50 basis points and a CNBC report suggested downgrades of bond insurers were imminent.
Prior to these happenings the stock market traded in a narrow range, sporting relatively modest losses that were driven by disappointing earnings news from Yahoo! (YHOO 19.05, -1.76) and Merck (MRK 46.69, -1.32), and a fourth quarter GDP report that showed growth of just 0.6% versus the 1.2% consensus estimate.
The GDP report, frankly, wasn't as bad as the headline suggested considering a drop in inventories created a big drag. Final sales, which exclude the swing in inventories and offer a better read on underlying demand, increased 1.9% at an annual rate.
Separately, in a bit of encouraging news, the ADP Employment report showed an estimate of 130K for January private payroll growth. While this report doesn't correlate very strongly with monthly payrolls reported by the government, it has been a decent directional indicator. As such, it sparked some hope that the January employment report on Friday will contain better than expected news.
For the most part, though, the market remain preoccupied with the FOMC decision at 2:15 p.m. ET. It got exactly what it wanted, too, when the FOMC cut the fed funds rate 50 basis points to 3.00% and the discount rate 50 basis points to 3.50%. In turn, the policy directive noted that downside risks to growth remain and that the Fed will act in a timely manner to address growth risks. That acknowledgment was taken as a hint that more rate cuts may be coming.
The major indices rallied in the wake of the decision. The Dow, Nasdaq and S&P, which were all down ahead of the announcement, gained as much as 200, 38, and 24 points, respectively.
Then, the music stopped when CNBC ran a report that one of the two major bond insurers was going to be downgraded by a credit rating agency, perhaps as early as today. As it so happens, Fitch cut its rating on FGIC Corporation and its financial guaranty insurance subsidiaries.
Selling activity quickly accelerated in the wake of these developments and it was pretty much a one-way trade in the final 30 minutes of the session. The major indices all closed in negative territory, led lower by the financial sector, which dropped 1.1%.
The industrials sector, up 0.3%, was the best-performing of the economic sectors on Wednesday, having been propped up by the positive moves made in Boeing (BA 82.87, +1.91) and UPS (UPS 72.02, +1.10) following their earnings reports.DJ30 -37.47 NASDAQ -9.06 NQ100 +0.1% R2K -1.4% SP400 -1.1% SP500 -6.49 NASDAQ Dec/Adv/Vol 1726/1294/2.59 bln NYSE Dec/Adv/Vol 1810/1355/1.76 bln
3:30 pm : The major indices climb to fresh highs and then pare some of their gains. The recent selling pressure has been broad-based but the financial sector (+1.0%) has had a notable pullback from its highs, when it surpassed a gain of 2%.
Nine of the ten sectors are higher, led by financials and materials (+1.5%), both of which stand to benefit from the rate cut. Telecom (-0.6%) is underperforming on a relative basis.
Tomorrow, the weekly jobless claim reading will be released. Economists expect 320K claims. Another barrage of companies will be reporting earnings, including MasterCard (MA 193.05, +1.59), MBIA (MBI 13.48, -2.50), Bristol-Myers (BMY 23.50, -0.11) and Colgate-Palmolive (CL 74.11, +0.07).DJ30 +108.85 NASDAQ +22.26 SP500 +10.89 NASDAQ Dec/Adv/Vol 1058/1935/1.97 bln NYSE Dec/Adv/Vol 923/2206/1.16 bln
3:00 pm : After some choppy action, the major indices are holding their post-FOMC announcement gains. A 50 basis point cut was widely expected, although it was not fully priced into futures (74% chance).
The 10-year Treasury note has dipped eight ticks since the announcement. Meanwhile, the euro has made gains against the dollar. The euro is up 0.80%, compared to being up up 0.12% prior to the announcement. The Dollar Index is now down 0.51% compared to being flat before the rate cut.
Treasury Secretary Henry Paulson said the U.S. is undergoing a "necessary correction" in housing after unsustainable price gains. He expects the economy to keep growing, but at a slower pace than recent years.DJ30 +133.97 NASDAQ +21.61 SP500 +16.01 NASDAQ Dec/Adv/Vol 1385/1593/1.69 bln NYSE Dec/Adv/Vol 1074/2049/962 mln
2:30 pm : The initial reaction to the Fed's decision to cut rates by 50 basis points has been positive. The Dow has gained roughly 150 points from pre-announcement levels.
The Fed cited stresses in financial markets and the tightening of credit for some businesses and households as reasons for the 50 basis point cut. The Fed also noted deepening of the housing contraction and softening in the labor markets.
The Fed said it expects inflation to moderate, but it continues to monitor inflation "carefully." The Fed noted that its recent actions should help promote moderate growth, but downside risks remain.
The emphasis on downside risks to the economy compared to inflation risks indicates the Fed is open to further rate cuts.
Of note, this vote was not unanimous. Richard W. Fisher of Dallas voted for no change in the fed funds rate.DJ30 +11.12 NASDAQ +20.06 SP500 +12.34 NASDAQ Dec/Adv/Vol 1565/1385/1.32 bln NYSE Dec/Adv/Vol 1702/1391/779 mln
2:15 pm : The FOMC announced that it has cut the fed funds rate by 50 basis points to 3.00% and the discount rate by 50 basis points to 3.50%.
Briefing.com will provide additional analysis at the bottom of the hour. DJ30 +55.52 NASDAQ +8.87 SP500 +7.45 NASDAQ Dec/Adv/Vol 1605/1329/1.24 bln NYSE Dec/Adv/Vol 1765/1318/773 mln
2:00 pm : With the FOMC decision roughly 15 minutes away, stocks continue to trade in a range-bound manner. It is uncertain how the traders will react to the Fed decision, but volatility is likely. Briefing.com will provide an update when the FOMC announcement hits the wires.
The 10-year note is trading down 4 ticks, pushing its yield up to 3.69%.DJ30 -31.46 NASDAQ -9.59 SP500 -3.88 NASDAQ Dec/Adv/Vol 1596/1339/1.2 bln NYSE Dec/Adv/Vol 1706/1371/703 mln
1:30 pm : The stock market is in wait-and-see mode ahead of the FOMC statement. The statement is expected around 2:15 ET.
Bond insurers MBIA (MBI 14.59, -1.39) and Ambac (ABK 12.09, -0.84) are under pressure. A CNBC commentator said activist investor and insurer short seller Bill Ackman is writing a letter to the NY State Insurance Commissioner saying that the insurers' situation is far worse than previously stated.DJ30 -30.81 NASDAQ -9.52 SP500 -2.97 NASDAQ Dec/Adv/Vol 1561/1351/1.11 bln NYSE Dec/Adv/Vol 1749/1307/651 mln
12:55 pm : The stock market is holding onto a modest loss. Only the defensive oriented utilities sector (+0.4%) remains in the green. Telecom (-1.7%) has extended its losses, while financials (-0.4%) have regained some ground.
In the S&P 500, 208 stocks are trading higher. General Electric (GE 35.1, +0.40) and Cisco (CSCO 24.39, +0.33) are providing leadership. Dow components Merck (MRK 45.80, -2.21) and AIG (AIG 55.51, -1.22) are the main laggards.DJ30 -44.14 NASDAQ -10.09 SP500 -4.95 NASDAQ Dec/Adv/Vol 1611/1287/999 mln NYSE Dec/Adv/Vol 1776/1273/582 mln
12:30 pm : The major indices continue to trade with modest losses. There has not been much movement this session, as the stock market has headed mostly sideways.
In currency trading, the dollar is close to flat against the euro and has made a slight 0.17% gain against the yen. The Dollar Index is basically flat, posting a loss of 0.04%.DJ30 -39.23 NASDAQ -7.57 SP500 -4.42 NASDAQ Dec/Adv/Vol 1605/1278/923 mln NYSE Dec/Adv/Vol 1737/1282/491 mln
12:00 pm : The stock market is posting a modest loss as investors await the 2:15 ET Federal Open Market Committee (FOMC) policy announcement. The S&P 500 has been trading with a slight loss throughout the session due to mixed earnings reports and a lower than expected GDP reading. Eight of the ten sectors are lower, and no sector is posting a large loss or gain.
In economic news, fourth quarter GDP grew by a smaller than expected annualized rate of 0.6% (consensus +1.2%). A sharp decline in inventories took 1.3% off the number. The drop in inventories may help boost first quarter GDP, though, as inventory swings balance out over time. Housing continues to be weak, posting the largest decline in a quarter century.
The ADP private employment report showed a 130,000 increase in private payrolls, higher than the expected increase of 40,000. This report only measures private employment, unlike the government's job report on Feb. 1 that measures both public and private payrolls. The ADP report is often inaccurate, but its encouraging read has led Briefing.com's chief economist Tim Rogers to push his payroll estimate a bit higher.
In earnings news, companies have had mixed reports. Yahoo! (YHOO 19.08, -1.73) topped expectations, but disappointed with its outlook. Its stock is being clobbered as a result, and being downgraded by several analysts is compounding the selling pressure.
Traders have also had negative responses to reports from Merck (MRK 45.80, -2.21), Allstate (ALL 49.95, -2.30), and UBS (UBS 41.98, -1.07). There has been a positive response to the better than expected earnings report from Dow component Boeing (BA 83.66, +2.70).
Now that the economic and earnings reports are out of the way, market participants have turned their attention to the FOMC release. Fed funds futures price a 74% chance of a 50 basis point cut with the rest of the bets on a 25 basis point cut.
The Fed cut rates by 75 basis points in an emergency meeting on Jan. 22, citing "a weakening of the economic outlook and increasing downside risks to growth." The current fed funds rate stands at 3.50% and the discount rate is 4.00%. The fed funds rate has been cut by 175 basis points since Sept. 18.
It is uncertain how the market will respond to the Fed's decision, but volatility will likely be high. DJ30 -50.97 NASDAQ -8.59 SP500 -5.90 NASDAQ Dec/Adv/Vol 1542/1296/992 mln NYSE Dec/Adv/Vol 1719/1272/445 mln
11:30 am : The Nasdaq joins the other major indices in the red. The stock market continues to hold near the flat level in light trading volume ahead of the FOMC announcement at 2:15 ET. Most economists expect a 50 basis point cut.
Only the utilities (+0.4%) and consumer staples (+0.2%) sectors remain in the green. Telecom (-1.4%) and financials (-0.9%) continue to be the main laggards. Yesterday, telecom led the market with a 3.6% gain and financials came in second with a 1.4% gain.DJ30 -48.93 NASDAQ -4.88 SP500 -5.53 NASDAQ Dec/Adv/Vol 1301/1475/654 mln NYSE Dec/Adv/Vol 1493/1443/353 mln
11:00 am : The major indices continue to trade in mixed fashion near the unchanged mark. Crude oil is trading flat at $91.60 per barrel following some choppy action due to the bearish crude inventory report.
Cigarette maker and Dow component Altria (MO 77.01, +0.89) reported earnings of $1.00 per share, beating the First Call consensus by $0.03. The company announced a Philip Morris international spin-off effective March 28. The report was made intraday and gave a boost to the company's stock, which was holding onto the unchanged mark. DJ30 -25.68 NASDAQ +3.99 SP500 -0.98 NASDAQ Dec/Adv/Vol 1247/1471/521 mln NYSE Dec/Adv/Vol 1543/1345/268 mln
10:30 am : The major indices are trading in mixed fashion with six of the ten sectors trading in positive territory. The Nasdaq is holding a slight gain, and the Dow and S&P are posting a slight loss. Buying interest during the recent recovery effort has been broad-based.
Just hitting the wires, the Dept. of Energy said crude oil inventories rose by a more than expected 3.6 million barrels. Analyst were expecting inventories to rise by 2.0 million barrels. Crude oil for March delivery was trading up 0.5% to $92.13 just ahead of the report.DJ30 -36.01 NASDAQ +1.63 SP500 -2.69 NASDAQ Dec/Adv/Vol 1180/1420/360 mln NYSE Dec/Adv/Vol 1682/1118/188 mln
10:00 am : Stocks continue to trade in the red with nine of the ten sectors lower. Telecom (-1.0%) and financials (-0.8%) are the main laggards after providing leadership yesterday. Energy (+0.1%) is posting a slight gain as crude oil advances.
Crude is trading up 0.7% to $92.26 per barrel ahead of the weekly energy inventory report at 10:30 ET. OPEC meets on Friday, but is widely expected to stand pat on its crude output.DJ30 -45.01 NASDAQ -4.69 SP500 -4.95 NASDAQ Dec/Adv/Vol 1455/841/128 mln
09:40 am : Stocks open lower as traders await the FOMC announcement at 2:15 ET. Earnings news has been mixed, and outlooks have been cautious.
Fourth quarter GDP grew by a smaller than expected annualized rate of 0.6% (consensus +1.2%). A sharp decline in inventories took 1.3% off the number. The drop in inventories may help boost first quarter GDP, though, as inventory swings balance out over time. Housing continues to be weak.
The ADP private employment report showed a 130,000 increase in private payrolls, higher than the expected increase of 40,000. This report only measures private payrolls, unlike the government's job report on Feb. 1 that measures both public and private employment. This reading is only loosely correlated with the government's report, and has been commonly criticized as inaccurate.DJ30 -66.90 NASDAQ -13.11 SP500 -8.55
09:15 am : S&P futures vs fair value: -5.2. Nasdaq futures vs fair value: -10.3.
08:59 am : S&P futures vs fair value: -5.9. Nasdaq futures vs fair value: -11.0. Futures continue to indicate a negative start, with the Nasdaq set to underperform after traders were disappointed with results from Yahoo! (YHOO). Market participants are awaiting the FOMC announcement at 14:15 ET. Fed funds futures price a 78% chance of a 50 basis point cut with the rest of the bets on a 25 basis point cut. The Fed cut rates by 75 basis points in an emergency meeting on Jan. 21. The current fed funds rate stands at 3.50% and the discount rate is 4.00%.
08:31 am : S&P futures vs fair value: -4.8. Nasdaq futures vs fair value: -13.0. Futures shed a few points in choppy action on a lower than expected GDP number. The advanced reading of fourth quarter GDP grew by an annualized rate of 0.6%, less than the expected reading of 1.2%. Core PCE rose 2.7% quarter over quarter (consensus 2.5%). In earnings news, Kellogg (K) met expectations and reaffirmed its FY2008 guidance. Dow Component Altria (MO) is still to report this morning.
08:16 am : S&P futures vs fair value: -4.5. Nasdaq futures vs fair value: -11.3. Futures gain a few points on a private payroll report. The ADP private employment reading came in at 130K, compared to the expected reading of 40K. The ADP report only measures the change in private employment, while the government's report measures both public and private jobs. The ADP has commonly been criticized as inaccurate. The government's jobs number is set for release on Feb. 1, economists expected payrolls to grow by 65K.
08:00 am : S&P futures vs fair value: -7.6. Nasdaq futures vs fair value: -14.0. Current indications suggest a lower start for the stock market. A disappointing sales forecast from Yahoo! (YHOO) and a $14 billion subprime related dollar write-down at UBS (UBS) is weighing on sentiment in the early-going. In other earnings news, Boeing (BA) and Merck (MRK) topped expectations. UPS (UPS) and Kraft (KFT) reported earnings that were in-line with estimates. The ADP private employment report will be released at 8:15 ET, and has been receiving traders’ attention of late. The market will turn attention to the advanced fourth quarter GDP reading at 8:30 ET (consensus +1.2%) and then to the FOMC announcement at 14:15 ET.
06:20 am : S&P futures vs fair value: -3.5. Nasdaq futures vs fair value: -8.8.
06:19 am : FTSE...5851.10...-34.10...-0.6%. DAX...6854.03...-38.93...-0.6%.
06:19 am : Nikkei...13345.03...-133.83...-1.0%. Hang Seng...23653.69...-638.11...-2.6%.
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