Market Update 080915 http://biz.yahoo.com/mu/update.html 4:35 pm : Monday marked an extremely ugly session on Wall Street, with the S&P 500 falling 4.7% -- marking the largest one-day percent drop since the first session following the attacks on September 11, 2001.
Losses were driven by severe turmoil in the financial sector –- Lehman Brothers (LEH 0.21, -3.44) filed for bankruptcy, Merrill Lynch (MER 17.06, +0.01) sold itself to Bank of America (BAC 26.55, -7.19) and AIG (AIG 54.76, -7.38) is looking for a massive amount of cash in an attempt to stave off failure.
The S&P 500 closed at its lowest level since 2005 and is now down 18.8% year-to-date and down 24.3% from its October 2007 all-time high.
The financial sector (-10.4%) took the brunt of the selling interest, although weakness was broad-based with all ten economic sectors posting a loss. Decliners outpaced advancers by a whopping 81-to-1 ratio on the NYSE. A total of 1.88 billion shares exchanged hands on the NYSE, which would normally be considered heavy volume, but is somewhat light considering the session's developments.
Lehman Brothers filed Chapter 11 bankruptcy protection after no buyers were willing to save the troubled 158-year-old firm due to a lack of a government backstop. None of Lehman's broker-dealer subsidiaries will be included in the bankruptcy and will continue to operate. Lehman listed $613 billion in debt, which is the largest bankruptcy on record according to reports.
Respected analyst Meredith Whitney said on CNBC that Lehman's large balance sheet will need to be liquidated swiftly, which will drive the prices of assets lower across the board. In turn, financial companies will hold assets that are not worth as much, leading to further write-downs, Whitney said.
Merrill Lynch agreed to be sold to Bank of America in an all-stock deal for $29 per share, or $50 billion, a 70.6% premium to Friday's closing level. BofA said it was willing to pay the premium because the benefits were appealing and it still believes it is a compelling price, noting there was the possibility that others were interested. According to The Wall Street Journal, the move came after federal officials "strongly encouraged" the sale due to concern that the firm was approaching failure. Fed officials may have encouraged the deal, although BofA CEO Lewis said there was no "pressure" from regulators.
Insurance giant AIG is planning to make several moves in an attempt to stave off a credit rating downgrade and possible failure, including selling some of its most valuable assets and raising capital, according to The Wall Street Journal. The company was in talks with the Fed to borrow as much as $40 billion, according to reports. But a late session Wall Street Journal report said the Fed will not be lending money to AIG, but is instead asking Goldman Sachs (GS 135.50, -18.71) and JPMorgan Chase (JPM 37.00, -4.17) to lead a consortium of banks to make from $70 billion to $75 billion available to AIG.
The idea that the Fed believes AIG needs even more than the $40 billion originally asked for unsettled the market, sparking a late-session decline that sent the financial sector and the broader market to settle at session lows.
The financial market turmoil sparked a rally in Treasuries, with the 10-year note spiking more than two and a half points, sending its yield down to 3.41% from 3.74%. In addition, traders bid up the price of fed funds futures for Tuesday's FOMC meeting, which now suggest an 80% chance of a 25 basis point cut to 1.75%, compared to no chance one week ago.
Commodities (-3.3%) saw a steep sell-off, with energy related names falling the most. Gasoline (-8.2%), crude oil (-7.1% at $94.06) and heating oil (-5.9%) got clipped. Gold (+3.4%) managed to gain, as investors flocked to the precious metal’s perceived safety.
The latest industrial production reading was a disappointment. According to the Federal Reserve, industrial production fell 1.1% in August, which was much steeper than the expected decline of 0.3%. An 11.9% decline in auto output and a 3.2% decrease in utility output acted as major drags. Capacity fell by one percentage point to 78.7% (consensus 79.6%).DJ30 -504.48 NASDAQ -81.36 NQ100 -3.5% R2K -4.2% SP400 -4.4% SP500 -59.00 NASDAQ Adv/Vol/Dec 390/2.72 bln/2549 NYSE Adv/Vol/Dec 36/1.88 bln/2921
3:30 pm : The stock market extends its losses as respected Oppenheimer analyst Meredith Whitney gives a dour outlook for financials. The S&P 500 at 1201.56 is very near its 52-week low of 1200.44 reached on July 15.
Whitney said that Lehman Brothers (LEH 0.18, -3.47) has a $600 billion balance sheet that needs to be liquidated swiftly, which will drive prices of assets lower across the board. In turn, financial companies will hold assets that are not worth as much, leading to further write-downs, Whitney said.
Whitney also said that U.S. house prices are the underlying problem, and futures prices indicate a peak-to-trough decline of 33%. However, Wachovia (WB 10.72, -3.55) is assuming a peak-to-trough decline of only 21%, yet they have 60% of their exposure, according to Whitney. She added that Citigroup (C 14.90, -3.05) only assumes a 23% decline.DJ30 -417.28 NASDAQ -72.38 SP500 -49.99 NASDAQ Adv/Vol/Dec 463/2.10 bln/2428 NYSE Adv/Vol/Dec 92/1.24 bln/2835
3:00 pm : The S&P 500 and Dow fall to session lows. Weakness is broad-based.
Despite the financial sector's 7.2% plummet this session and all the turmoil within the sector, it is still 16% above its July 15 multi-year low.
Commodities are getting hammered, with the CRB Index falling 3.3%. Some of the biggest decliners include gasoline (-6.9%), crude oil (-5.9%) and heating oil (-5.0%). The biggest gainers are nickel (+4.1%), gold (+2.9%) and silver (+2.5%).DJ30 -343.76 NASDAQ -53.76 SP500 -38.28 NASDAQ Adv/Vol/Dec 536/1.91 bln/2328 NYSE Adv/Vol/Dec 186/1.13 bln/2734
2:30 pm : Selling pressure eases as the major indices trade modestly above session lows. Treasuries climb to session highs, with the 10-year note currently up two full points.
The Volatility Index, which measures implied volatility of S&P 500 options, is up 12.5% to 28.9. The higher VIX indicates greater uncertainty of the size of the S&P 500's future movement.DJ30 -295.13 NASDAQ -47.55 SP500 -33.43 NASDAQ Adv/Vol/Dec 533/1.79 bln/2305 NYSE Adv/Vol/Dec 174/1.04 bln/2730
2:00 pm : Treasury Secretary Henry Paulson just wrapped up question answer session at the White House. When asked how the financial turmoil happened, Paulson noted market excesses and an "archaic" regulatory system. He said the American people can be very confident about their bank accounts.
The financial sector (-7.6%) extends its declines, hitting a fresh session low. The major indices fall in conjuction, and are trading near their worst levels.
Steel manufacturer Nucor (NUE 46.48, -3.04) increased its guidance for third quarter earnings to between $2.15 and $2.20 per share, up from its previous range of $1.80 to $1.85. The raised guidance surpasses the average analyst estimate of $1.93 per share. The increased outlook was due to improved overall performance and a lower-than-expected accounting charge related to the LIFO inventory method. NUE recieved a slight boost on the news, but is still posting a loss of 5.8%.DJ30 -309.15 NASDAQ -49.65 SP500 -35.28 NASDAQ Adv/Vol/Dec 566/1.66 bln/2259 NYSE Adv/Vol/Dec 185/938 mln/2709
1:30 pm : The major indices are on the defensive as the financial sector (-6.2%) falls to a new session low.
Goldman Sachs (GS 138.88, -15.33), which has managed to avoid much of the problems that rocked its peers on Wall Street, is down 10% to establish a fresh 52-week low.
Market breadth is overwhelmingly negative. Decliners outpace advancers by 9-to-1 on the NYSE and by 16-to-5 on the Nasdaq. Volume is on the heavy side with 854 million shares already exchanging hands on the NYSE.DJ30 -285.30 NASDAQ -36.95 SP500 -29.31 NASDAQ Adv/Vol/Dec 668/1.52 bln/2137 NYSE Adv/Vol/Dec 288/854 mln/2587
1:00 pm : The session's weakness is widespread, but there are a few select pockets of strength. With the downturn in oil prices, currently off 4.3%, airline stocks are flying higher. The Amex Airline Index is up 4.1%.
Upgrades of Continental Airlines (CAL 20.27, +1.32), Delta Air Lines (DAL 8.41, +0.28), US Airways (LCC 8.38, +0.50), and Northwest Airlines (NWA 10.01, +0.16) to Buy from Neutral at UBS has also helped the industry.
In the latest news from the financial sector (-5.6%), CNBC reported that the Federal Reserve has hired Morgan Stanley (MS 33.78, -3.45) to negotiate AIG (AIG 5.79, -6.35) for a bridge loan following word Warren Buffett is no longer in talks with AIG.DJ30 -244.83 NASDAQ -29.16 SP500 -24.64 NASDAQ Adv/Vol/Dec 631/1.5 bln/2040 NYSE Adv/Vol/Dec 402/764 mln/2735
12:30 pm : Stocks pare some losses as several headlines regarding struggling Dow component AIG (AIG 5.98, -6.11) hit the wires. The stock market's decline is steep despite the modest recovery effort.
New York Governor Paterson said AIG remains a financial sound company and has authorized the company to access $20 billion of assets through its subsidiaries for the purpose of posting same as collateral, Reuters reports. Paterson said the plan lets AIG "make a bridge loan to itself," Dow Jones reports. Meanwhile, CNBC reports AIG is still talking to the Federal Reserve.
Crude oil is posting a loss of 3.5% to $97.57 per barrel. The current level is a significant improvement from session lows, when oil traded with a loss of 7.0% at $94.13 per barrel.DJ30 -249.23 NASDAQ -29.44 SP500 -24.95 NASDAQ Adv/Vol/Dec 596/1.04 bln/2175 NYSE Adv/Vol/Dec 203/698 mln/2650
12:05 pm : Stocks are sharply lower after Lehman Brothers (LEH 0.16, -3.49) filed for bankruptcy, Merrill Lynch (MER 20.71, +3.66) agreed to sell itself to Bank of America (BAC 28.33, -16.03) and reports indicate that AIG (AIG 4.32, -7.82) is desperate for capital.
At midday stocks are approaching opening lows, although they are not down as much as feared. Weakness is broad-based, with all ten economic sectors posting a loss.
Lehman Brothers filed Chapter 11 bankruptcy protection after no buyers were willing to save the troubled 158-year-old firm due to a lack of a government backstop. None of Lehman's broker-dealer subsidiaries will be included in the bankruptcy and will continue to operate. Lehman listed $613 billion in debt, which is the largest bankruptcy on record according to reports.
Merrill Lynch agreed to be sold to Bank of America in an all-stock deal for $29 per share, or $50 billion, a 70.6% premium to Friday's closing level. BofA said it was willing to pay the premium because the benefits were appealing and it still believes it is a compelling price, noting there was the possibility that others were interested. According to the Wall Street Journal, the move came after federal officials "strongly encouraged" the sale due to concern that the firm was approaching failure. Fed officials may have encouraged the deal, although BofA CEO Lewis said there was no “pressure” from regulators.
Meanwhile, insurance giant AIG is making moves in an effort to survive. In an attempt to avoid a credit rating downgrade, AIG is planning to sell some of its most valuable assets, raise capital and reach out to the Fed, accord to the WSJ. Over the weekend, AIG turned down a capital infusion from a group of private equity firms because an option tied to the offer would have effectively given the private equity firms control of AIG, according to reports. AIG is down 64% this session.
The financial sector has plummeted 5.9%.
Crude prices are down a steep 4.3% to $96.79 per barrel, falling to their lowest level since February in the wake of the financial market turmoil and news that Hurricane Ike caused limited damage to production facilities.
Traders feel the collapse of Lehman and other troubled financial institutions may spur the FOMC to cut rates on Tuesday. Fed funds futures suggest a 58% chance of a 25 basis point rate cut, compared to no chance just one week ago.
The increased odds for a rate cut, and investor uncertainty has prompted a rally in Treasuries. The 10-year note is up 1-24/32, sending its yield down to 3.51% from 3.72%. Gold is up 2.1% as a result, although the dollar is only posting a slight loss of 0.1%.
In merger and acquisition news, shares of video game maker Take-Two Interactive (TTWO 16.44, -5.45) are down 25% after Electronic Arts (ERTS 44.18, -0.81) terminated its discussions to acquire Take-Two. In March, Take-Two rejected a $26.00 per share offer from Electronic Arts.
Walgreen (WAG 34.58, -1.49) offered to acquire Longs Drug Stores (LDG 76.22, +4.56) for $75 per share in cash, or $3 billion including the assumption of debt. The offer is $3.50 per share more than CVS Caremark's (CVS 36.47, -1.17) pending merger agreement to acquire Longs. Longs is reviewing the proposal.
In economic news, the latest industrial production reading was disappointing. The Federal Reserve said earlier this morning that industrial production fell 1.1% in August, which was much steeper than the expected decline of 0.3%. An 11.9% decline in auto output and a 3.2% decrease in utility output acted as major drags. Capacity fell by one percentage point to 78.7% (consensus 79.6%).
Industrial stocks are down 3.2%.DJ30 -311.51 NASDAQ -39.17 SP500 -32.16 NASDAQ Adv/Vol/Dec 589/886 mln/2156 NYSE Adv/Vol/Dec 216/622 mln/2606
11:30 am : The recovery effort fades, although the stock market is still well above session lows. Conversely, Treasuries on the long end of the curve post strong gains, but have declined from their best levels.
European markets have pared some losses, although they continue to trade with very steep declines. London's FTSE is down 3.4%, France's CAC is down 3.8% and Germany's DAX is down 2.9%.DJ30 -245.16 NASDAQ -31.36 SP500 -25.54 NASDAQ Adv/Vol/Dec 709/718 mln/1986 NYSE Adv/Vol/Dec 362/521 mln/2412
11:00 am : The major indices remain in the red, but are trading at their best levels of the session. Retailers (+0.4%) are showing some relative strength, with Amazon.com (AMZN 79.56, +1.19) and Sherman Williams (SHW 62.51, +0.75) providing leadership.
The consumer staples (-0.1%) and consumer discretionary (-0.3%) sectors are outperforming on a relative basis.DJ30 -184.50 NASDAQ -20.78 SP500 -17.81 NASDAQ Adv/Vol/Dec 689/579 mln/1953 NYSE Adv/Vol/Dec 320/427 mln/2412
10:35 am : The major indices recover a bit, but continue to post large losses. The Nasdaq Composite has seen the biggest improvment -- it is currently down 1.1%, cutting its opening decline by more than half.
During a press conference on the Bank of America (BAC 28.72, -5.01) and Merrill Lynch (MER 21.33, +4.30) merger, BofA CEO Lewis said there was no pressure from regulators to make this deal happen. The Wall Street Journal reported the Fed strongly encouraged the deal. The merger agreement was put together in 48 hours.
The industrials sector (-2.9%) is underperforming this session. The Federal Reserve said earlier this morning that industrial production fell 1.1% in August, which was much steeper than the expected decline of 0.3%. A 11.9% decline in auto output and a 3.2% decrease in utility output acted as major drags.
In merger and acquistion news, shares of video game maker Take-Two Interactive (TTWO 16.12, -5.77) are down 26% after Electronic Arts (ERTS 43.84, -1.15) terminated its discussions to acquire Take-Two. In March, Take-Two rejected a $26.00 per share offer from Electronic Arts.
Walgreen (WAG 34.77, -1.30) offered to acquire Longs Drug Stores (LDG 75.27, +3.61) for $75 per share in cash, or $3 billion including the assumption of debt. The offer is $3.50 per share more than CVS Caremark's (CVS 36.91, +0.73) pending merger agreement to acquire Longs. Longs is reviewing the proposal.DJ30 -237.80 NASDAQ -25.21 SP500 -21.66 NASDAQ Adv/Vol/Dec 509/412 mln/2059 NYSE Adv/Vol/Dec 113/316 mln/2542
10:00 am : Stocks are posting steep declines with all ten sectors in negative territory. The energy sector (-4.4%) is posting the steepest loss as crude prices plunge 4.9%. The defensive oriented consumer staples sector is outperforming on a relative basis with a 1.2% loss.
CNBC reported that AIG (AIG 7.05, -5.09) plans to disclose a restructuring plan later this morning and the company is in talks with Warren Buffett, who is CEO of Berkshire Hathaway (BRK.A 117000, -2500).
Wells Fargo (WFC 34.61, +0.31) rebounds to a modest gain, although the financial sector as a whole is posting a steep 3.9% loss.DJ30 -327.72 NASDAQ -46.34 SP500 -35.75 NASDAQ Adv/Vol/Dec 340/195 mln/2086 NYSE Adv/Vol/Dec 1/153 mln/1772
09:45 am : The stock market opens sharply lower, with the S&P 500 down nearly 3%. Lehman Brothers (LEH 0.29, -3.36) filing for bankruptcy, Merrill Lynch (MER 21.52, +4.47) selling itself to Bank of America (BAC 28.48, -5.24) and reports that AIG (6.15, -5.99) is "desperately" seeking cash is roiling the financial markets.
Lehman Brothers filed Chapter 11 bankruptcy protection after no buyers came to the table to save the troubled firm due to a lack of a government backstop. None of Lehman's broker-dealer subsidiaries will be included in the bankruptcy and will continue to operate.
Merrill Lynch agreed to be sold to Bank of America in an all-stock deal for $29 per share, or $50 billion, a 70.6% premium to Friday's closing level. BofA said it was willing to pay the premium because the benefits were appealing and it still believes it is a compelling price, noting there was the possibility that others were interested. According to the Wall Street Journal, the move came after federal officials "strongly encouraged" the sale due to concern that the firm was approaching failure.
Meanwhile, insurance giant AIG is making moves in an effort to survive. In an attempt to avoid a credit rating downgrade, AIG is planning to sell some of its most valuable assets, raise capital and reach out to the Fed, accord to the WSJ. Over the weekend, AIG turned down a capital infusion from a group of private equity firms because an option tied to the offer would have effectively given the private equity firms control of AIG, according to reports.
The financial sector is down 4.9%.
Crude oil prices plunge in the wake of the financial market developments. Oil prices are down 5.4% to $95.74 per barrel, sending oil to a 0.2% year-to-date loss and its lowest price since February.
Meanwhile, Treasuries are rallying, with the 10-year note up 53 ticks, sending its yield down to 5.52%.DJ30 -321.26 NASDAQ -52.74 SP500 -35.95
09:18 am : S&P futures vs fair value: -43.60. Nasdaq futures vs fair value: -52.80. Futures are on the defensive, with a worse-than-expected economic reading not helping matters. Just hitting the wires, August industrial production fell 1.1% in August (consensus -0.3%) and capacity fell by one percentage point to 78.7% (consensus 79.6%). In deal news, Long Drugs Stores (LDG) confirmed earlier today that Walgreen (WAG) expressed unsolicited interest of $75.00 per share in cash for all outstanding shares of LDG. CVS Caremark (CVS) and Longs entered a merger agreement at $71.50 per share in August.
09:01 am : S&P futures vs fair value: -40.40. Nasdaq futures vs fair value: -49.00. A sharply lower open is expected. In news outside of the financial market turmoil, shares of video game maker Take-Two (TTWO) are down 28.5% in premarket trading after Electronic Arts (ARTS) terminated its discussions to acquire Take-Two. In March, Take-Two rejected a $26.00 per share offer from Electronic Arts.
08:30 am : S&P futures vs fair value: -40.40. Nasdaq futures vs fair value: -46.30. Futures continue to indicate a sharply lower open. The September Empire Manufacturing Index fell to -7.4 from 2.8. Economists expected a reading of 1.0. Fed funds futures rally in the wake of the financial market turmoil, now suggesting there is a strong possibility of a rate cut on Tuesday. Futures suggest a 74% of a 25 basis point cut to 1.75%, and a 26% chance of no change. At the previous close, futures suggested only a 12% chance of a 25 basis point cut, with the rest of the odds placed on no change.
08:10 am : S&P futures vs fair value: -40.90. Nasdaq futures vs fair value: -45.80. The stock market is set to tumble at the open after Lehman Brothers (LEH) filed for bankruptcy, Merrill Lynch (MER) sold itself to Bank of America (BAC) and AIG (AIG) is seeking cash. Lehman Brothers filed Chapter 11 bankruptcy protection after no buyers came to the table due to a lack of a government backstop. None of Lehman's broker-dealer subsidiaries will be included in the bankruptcy and will continue to operate. LEH is down 90% to $0.36 per share in premarket trading. Merrill Lynch agreed to be sold to Bank of America for $29 per share, or $50 billion, a 70.6% premium. According to the Wall Street Journal, the move came after federal officials "strongly encouraged" the sale, as they worried the firm was approaching failure. Meanwhile, insurance giant AIG (AIG) is making moves in an effort to survive. In an attempt to avoid a credit rating downgrade, AIG is planning to sell some of its most valuable assets, raise capital and reach out to the Fed, accord to the WSJ. Separately, a group of ten commercial and investment banks are creating collateralized borrowing facility, with each firm committing $7 billion. The news has sparked a global equity sell-off. France's CAC 40 is down 5.2%, Germany's DAX is down 3.9% and London's FTSE is down 4.4%. Major Asian markets were closed for a holiday. Crude oil prices are plummeting, down 5.4% to $95.69 per barrel. Gold prices are up 1.1% to $769.50 per ounce. Treasuries are rallying, with the 10-year note up 50 ticks, sending its yield down to 3.53%.
07:01 am : S&P futures vs fair value: -42.10. Nasdaq futures vs fair value: -49.50.
07:01 am : Nikkei...Holiday......... Hang Seng...Holiday.........
07:01 am : FTSE...5183.70...-233.00...-4.30%. DAX...6004.43...-233.30...-3.80%.
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