Market Update 080401 http://biz.yahoo.com/mu/update.html 4:25 pm : Today marked the start of the second quarter and what a start it was. The stock market recorded some huge gains that were surprising in their own right, and all the more surprising when taking stock of the reported catalysts for the move.
To begin, the futures market exhibited early strength following an update from Swiss bank UBS (UBS 33.01, +4.21) that it expected to incur a $19 billion writedown in the first quarter and report a loss on the order of $12 billion. German bank Deutsche Bank (DB 117.75, +4.70) then added that it anticipated a first quarter writedown of approximately $3.9 billion. For good measure Deutsche Bank clarified that conditions have become significantly more challenging during the last few weeks.
Closer to home Lehman Bros. (LEH 44.34, +6.70) noted it was successful in raising $4 billion worth of new capital through the issuance of convertible preferred shares. The deal, while dilutive in nature, was met with great enthusiasm by investors, and the market, as it helped squelch the liquidity rumors that pummeled the investment firm's stock in the wake of the Bear Stearns collapse. Separately, UBS said it was preparing to raise as much as $15 billion in new capital.
All in all, there was a proclivity to believe that the confluence of these events implied the financial sector is nearing a bottom. That view, which has been heard before, remains open for debate, yet there was little question today that it served as a catalyst for broad-based buying interest.
The general recognition that the first day of a new quarter is often governed by a bullish bias didn't hurt either. To this point, it is a period where new cash is often put to work in many of the prior quarter's worst performers. Fittingly, the financial sector led Tuesday's rally with a massive 7.5% gain that was compounded with short-covering activity.
Aside from the good vibes surrounding the financial sector, the market also rallied around the March ISM Index, which was released at 10:00 ET. The report on national manufacturing conditions, which is the outcome of a survey done by the Institute for Supply Management, checked in at 48.6 versus the market's expectation of 47.5 and the February reading of 48.3.
A number below 50 in the ISM Index is meant to signal contraction; nonetheless, the market ran with the news as a hopeful sign that conditions in the manufacturing sector are stabilizing.
From the time the ISM Index was released it was pretty much a one-way trade that saw the major indices close at their highs for the day. A pullback in commodity prices, which was sparked by a strengthening in the dollar, provided an added measure of support.
Gold was a notable lowlight in the commodity arena as it tumbled 3.7% to $887.80 per ounce. Natural gas futures and wheat futures, which dropped 5.2% and 3.7%, respectively, were the other main drags on the CRB Index.
Presumably, money was flowing out of commodities and into stocks. The same can be said for Treasuries, which were weak across the yield curve.
The front-end bore the brunt of today's selling in the Treasury market as expectations for a more aggressive 50 basis point rate cut at the April FOMC meeting were pared back considerably in the wake of the stock market rally. Specifically, the probability of such a move went from 52% to 20%. There is now a heavy 80% probability the FOMC only cuts by 25 basis points.
On Wednesday traders will turn their attention to the earnings report from Best Buy (BBY 43.47, +2.01) and Fed Chairman Bernanke's testimony on the U.S. economic outlook before the Joint Economic Committee. In particular, though, they will be looking for follow-through to Tuesday's rally.DJ30 +391.47 NASDAQ +83.65 NQ100 +4.1% R2K +3.3% SP400 +3.3% SP500 +47.48 NASDAQ Dec/Adv/Vol 733/2202/2.15 bln NYSE Dec/Adv/Vol 500/2681/1.70 bln
3:35 pm : As we head into the final half-hour of trade, all 30 Dow components are trading higher. Financial companies JPMorgan Chase (JPM 46.48, +3.53) and AIG (AIG 46.34, +3.09) are leading the way.
The stock market is down 7.1% this year. But that is not so bad considering it was down 14.0% a few weeks ago.
Visa (V 61.14, -1.22) is one the few large-cap stocks trading lower this session. There is no specific news for its decline, although at yesterday's closing price the stock was up 39.9% from its March 19 initial public offering. Because it is a recent IPO, Visa is not yet included in the S&P 500. DJ30 +361.83 NASDAQ +73.60 SP500 +41.44
3:00 pm : The major indices are marching higher. Showing the most strength this session are the two sectors that have also had the largest declines compared to a year ago--financials (+6.5%) and consumer discretionary (+4.2%). Financials are down 25.6% compared to one year ago, while consumer discretionary is down 15.5%. By comparison, the S&P 500 is down 3.9% versus one year ago.
The Volatility Index has fallen 11% to 22.68. This means traders now expect the market to move higher or lower by 6.54% over the next 30 days. DJ30 +346.42 NASDAQ +70.34 SP500 +39.11 NASDAQ Dec/Adv/Vol 758/2104/1.52 bln NYSE Dec/Adv/Vol 521/2613/1.12 bln
2:30 pm : The S&P hits a fresh session high, which has happened nearly every half-hour this session. Every sector is now posting a gain of at least 1%, and seven are up more than 2%.
Both General Motors (GM 19.81, +0.76) and Ford (F 5.89, +0.17) reported worse than expected March North American sales, although they are still outperforming the broader market this session. GM's sales dropped 13.0% versus the expected 5.5% decline, and Ford's sales fell 14.0% compared to the expected decline of 9.7%. DJ30 +314.67 NASDAQ +65.45 SP500 +36.13 NASDAQ Dec/Adv/Vol 769/2054/1.37 bln NYSE Dec/Adv/Vol 544/2576/1.01 bln
2:00 pm : This session marks the third largest advance of the year, falling short of the Fed induced gains of 3.7% on March 11 and 4.2% on March 18. All three of the sessions have a common element--financials led the way higher.
Dell (DELL 20.11, +0.19) is underperforming on a relative basis. After yesterday's close, Dell announced it is undertaking a strategic assessment of ownership alternatives for its Dell Financial Services financing activities. The company was not clear what these alternatives are. Regardless, the market has not been impressed, considering shares of Dell are up 1.0% compared with the broader market's 2.6% rise.DJ30 +295.26 NASDAQ +62.98 SP500 +33.56 NASDAQ Dec/Adv/Vol 797/2028/1.26 bln NYSE Dec/Adv/Vol 564/2551/930 mln
1:30 pm : The start of the second quarter continues to be a strong one, as the major indices climb to fresh session highs. Market breadth is bullish, with advancers outpacing decliners by nearly 5-to-1 on the NYSE, and by 13-to-5 on the Nasdaq.DJ30 +332.77 NASDAQ +67.71 SP500 +37.46 NASDAQ Dec/Adv/Vol 761/2047/1.16 bln NYSE Dec/Adv/Vol 509/2582/859 mln
1:00 pm : The stock market is trading slightly below its session high after taking a modest dip. Despite this session's gains, all ten sectors remain in the red for the year. Although, consumer staples, materials, and industrials are close to the unchanged mark with losses of around 2%.
This session's strength is broad-based with 126 of the 130 S&P 500 industry groups in positive territory, and 95% of S&P 500 stocks posting a gain. The few stocks that are trending lower are mostly due to company specific items. For example, Yahoo! (YHOO 28.49, -0.44) is a laggard on reports that Microsoft (MSFT 29.20, +0.82) has no plans to raise its offer to acquire the company.DJ30 +296.70 NASDAQ +58.09 SP500 +32.90 NASDAQ Dec/Adv/Vol 778/1991/1.06 bln NYSE Dec/Adv/Vol 563/2525/787 mln
12:30 pm : The major indices continue to drift higher, as they have since the opening bell. With the exception of consumer staples (+0.7%), all ten economic sectors are posting a gain of more than 1%, with five of them advancing more than 2%.
Commodities have pared their losses, considering the CRB Index is down 0.5% after being down 1.7% in earlier trade. Crude oil (+0.6% to $102.12) is playing a role in the recovery as it rebounds into positive territory.
Separately, European markets had a strong showing, with London's FTSE rising 2.6%.DJ30 +311.92 NASDAQ +62.89 SP500 +35.10 NASDAQ Dec/Adv/Vol 706/2031/944 mln NYSE Dec/Adv/Vol 526/2533/723 mln
12:10 pm : On Tuesday, the major indices rallied on hopes that the worst of the subprime mess is over, and due to a better than expected manufacturing reading. At midday, stocks are sharply higher, at their best levels of the session.
All ten economic sectors are posting a gain, with the financials sector leading the way with a massive 4.9% advance. Traders have taken seemingly negative news as a sign the worst may be behind the market.
UBS (UBS 32.30, +3.50) announced it expects to write-down an additional $19 billion in assets, its largest write-down to date. This brings the firm’s total write-downs to $33 billion since October. In order to shore up its capital position, UBS is seeking shareholder approval to issue new shares to raise roughly $15 billion. Shares of UBS are up 12% even though this write-down basically guarantees a fourth quarter loss. In addition, its new issuing will cause existing shareholders’ stakes to decrease in value.
German’s Deutsche Bank (DB 116.25, +3.20) announced it expects a $4 billion write-down related to its subprime holdings, saying conditions have worsened. The company had previously warned that it would probably have to write-down some assets, so this announcement is not too much of surprise. The firm has weathered the recent subprime mess better than many of its peers, such as UBS.
Finally, Lehman Brothers (LEH 41.64, +4.00) announced it is issuing convertible preferred stock to raise capital. The preferred stock will pay a dividend of 7.25%, and at any time the can be converted into common stock at a price of roughly $49.87. The company said the offering is because it received substantial interest from several long-term clients and institution investors, not because the company was forced to raise capital. Due to higher than expected demand, the company is going to issue $4 billion worth of preferred stock, instead of the originally planned $3 billion. Its shares, and financials, saw a lift on news of the strong demand. Shares of Lehman are now up more than 100% from a few weeks ago.
The mostly negative news has caused a surge of buying interest, with the thrifts & mortgages (+8.7%), diversified financials (+7.0%), and consumer finance (+6.7%) groups posting steep gains. However, there were similar rallies on negative news as early as October on hopes that the worst of the subprime mess was over--which clearly was not the case. Whether this really ends up being the turning point remains to be seen, but as of now there is a bullish bias prevalent within the market.
This session’s improved sentiment is demonstrated by less risk aversion. Treasuries are posting steep declines as traders sell their notes in order to buy stocks. Also, gold is down a massive 4.1%, and the dollar is up 1.0%.
Gold is now down 17.5% from its all-time nominal high of $1033.90 that was reached on March 17. Conversely, the stock market is up 8.2% from its 52-week low that was reached on March 17.
In economic news, the ISM Manufacturing Index, a national manufacturing survey, unexpectedly rose 0.3 to 48.6. Economists expected a reading of 47.5. The better than expected reading is definitely a positive for the stock market, however, since the number is below 50, it still reflects contraction in manufacturing. DJ30 +287.92 NASDAQ +58.32 SP500 +31.86 NASDAQ Dec/Adv/Vol 710/2012/850 mln NYSE Dec/Adv/Vol 531/2517/657 mln
11:35 am : The major indices are holding near their best levels of the session. All ten economic sectors are in positive territory.
While in positive territory, consumer staples (+0.3%) has not participated in this session's rally, as it has headed mostly sideways since the opening bell. Part of its underperformance is due to weakness in Altria (MO 21.18, -1.02), which is the only Dow component in negative territory. The company was downgraded to Equal Weight from Overweight at Morgan Stanley. Yesterday, the firm spun off Phillip Morris International (PM 49.67, -0.91).
The energy sector is still lagging, but is now in the green as crude oil pares its losses. Oil is now down 0.6% after being down as much as 2.0%. Likewise, materials (+0.6%) has recovered into the green.DJ30 +261.64 NASDAQ +53.63 SP500 +28.22 NASDAQ Dec/Adv/Vol 713/1979/720 mln NYSE Dec/Adv/Vol 577/2439/566 mln
11:00 am : The major indices contine to take out new highs. Market sentiment has improved. Defensive investments such as Treasuries are seeing selling interest, as is gold (-3.2%). Meanwhile, the dollar has rebounded 1.0%, with the euro losing 1.4% against the dollar. Whether this bullish bias holds remains to be seen, but as of now buyers are in control.DJ30 +266.00 NASDAQ +51.59 SP500 +28.67 NASDAQ Dec/Adv/Vol 661/1966/575 mln NYSE Dec/Adv/Vol 564/2409/461 mln
10:35 am : The major indices are trading at their session highs. Financials (+4.6%) are leading the way, and hold seven of the top ten S&P 500 industry group leadership spots.
The thrifts & mortgages group (6.2%) is posting the largest gain, and is now up 36.3% from its 52-week low reached on March 10. However, the group still has a long way to go to fully recover, as it is down 62.3% from its 52-week high.DJ30 +230.18 NASDAQ +42.93 SP500 +23.60 NASDAQ Dec/Adv/Vol 657/1915/424 mln NYSE Dec/Adv/Vol 585/2334/345 mln
10:05 am : The major indices extend their gains as a better than expected economic reading hits the wire. Eight of the ten sectors trending higher. Leading the way is financials (+4.7%) and telecom (+2.6%). Materials (-0.3%) and energy (-0.3%) are laggards, as crude slides 1.4% to $100.10 per barrel, and gold falls 2.7% to $891.70.
Just hitting the wires the ISM Index, a national manufacturing survey, rose to 48.6 from 48.3. This was better than the expected reading of 47.5. However the number still reflects contraction in manufacturing because it is below 50.DJ30 +226.11 NASDAQ +44.47 SP500 +23.48 NASDAQ Dec/Adv/Vol 658/1739/210 mln NYSE Dec/Adv/Vol 595/2220/186 mln
09:45 am : Stocks open on a high note, with each of the major indices posting a gain of at least 1%. Headlines this morning were seemingly negative.
UBS (UBS) announced $19 billion in write-downs--bringing its total write-down to $33 billion. It also is seeking shareholder approval to raise roughly $15.1 billion in fresh capital. Meanwhile, Deutsche Bank (DB) announced a write-down of $3.9 billion. Lastly, Lehman Brothers (LEH) is raising $4 billion in a preferred stock offering to shore up its capital position.
These stocks are actually trading higher on the news, which in turn, is lifting the financial sector to a strong 4.1% gain. Traders are betting that the worst of the subprime mess may now be over, and were pleased to hear that the Lehman Brothers offering had higher than expected demand.DJ30 +157.31 NASDAQ +34.17 SP500 +17.30 NASDAQ Dec/Adv/Vol 566/1740/145 mln NYSE Dec/Adv/Vol 546/2193/128 mln
09:15 am : S&P futures vs fair value: +15.5. Nasdaq futures vs fair value: +23.8.
09:00 am : S&P futures vs fair value: +14.9. Nasdaq futures vs fair value: +22.2. Futures climb to their best levels on word that Lehman Brothers (LEH) has a significant oversubscription of its deal. It prices $4 billion offering of convertible preferred stock.
08:30 am : S&P futures vs fair value: +11.7. Nasdaq futures vs fair value: +16.8. Futures are trading near their best levels of the session. Gold has slipped below $900, as it is down 2.0% to $897.70 per ounce. The precious metal is now down 15.2% from its all-time nominal high of $1033.90 that was reached just a few weeks ago.
08:05 am : S&P futures vs fair value: +9.6. Nasdaq futures vs fair value: +15.0. Despite seemingly negative news out of the financial sector, futures point to a higher start to the trading day. UBS (UBS) announced a new $19 billion in write-downs, and will be asking shareholders to approve a roughly $15.1 billion offering. Meanwhile, Lehman Brothers (LEH) said it is offering up to $3 billion of preferred stock. On the economic front, traders await the ISM Manufacturing Index at 10:00 ET.
06:20 am : S&P futures vs fair value: +7.2. Nasdaq futures vs fair value: +13.3.
06:19 am : FTSE...5755.20...+53.10...+0.9%. DAX...6638.87...+109.90...+1.6%.
06:19 am : Nikkei...12656.42...+130.88...+1.0%. Hang Seng...23137.46...+288.26...+1.3%.
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