Ben Bernanke testifying to Congress was at center stage today. The markets were very choppy as investors digested lots of weak earnings and economic data and Bernanke’s statements regarding the economy. We opened slightly lower this morning because the durable orders and new home sales numbers came in much weaker than expected.
“New home sales fell by 2.8 percent last month to a seasonally adjusted annual rate of 588,000 units, the slowest pace since February 1995,” according to Yahoo! Finance. “The median price of a new home dropped to $216,000 in January, down 4.3 percent from the December median sales price…that was the lowest median price since September 2004.”
The inventory of unsold homes declined, but “the number of months it would take to exhaust the current inventory rose to 9.9 months, the longest period in more than 26 years. Sales fell by 10.3 percent in the Northeast and dropped by 7.6 percent in the
The durable orders number declined 5.3% (the market was looking for a 4.0% decline) because of weakness in transportation equipment orders and slower demand for aircraft and vehicle parts (Source: finance.yahoo.com).
Both pieces of data were very weak and point to the economy being in a recession. I was surprised that the market did not sell off more on this news, but once again, no one was expecting a good number.
Fannie Mae and Toll Brothers (homebuilder) reported earnings before the bell. Fannie Mae lost $3.6B during Q4 because of increased loan delinquencies. They reported a loss of $3.80 per share while analysts’ were predicting a loss of $1.24 per share. Fannie Mae and Freddie Mac both popped today on news that regulatory restraints on their mortgage investments will soon be lifted. This Bloomberg.com article explains what this means for these two companies.
Toll Brothers also reported disappointing numbers, but managed to finish the day up 3%. They reported $245M in write-downs and overall they lost $96M. Their EPS was -$0.61 compared with the -$0.50 estimate. The only positive was they had sales of $843M compared with the $818M analysts were expecting (Source: finance.yahoo.com).
The market got a boost in the morning from Bernanke’s comments about the economy and the possibility of future rate cuts. He noted that the Fed is eyeing rising commodity costs and that “the economic situation has become distinctly less favorable.” He said the Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.” This is the statement investors were looking for and the market rallied because there is a chance more rate cuts are coming to stimulate the sluggish economy” (Source: Bloomberg.com).
On this news of potential rate cuts, the dollar sunk to an all-time low against many foreign currencies (check out this Bloomberg.com article). Gold also rallied because it is a hedge against rising inflation. Investors expect inflation to increase as the Fed lowers rates to fight slower growth. Oil was down on a bearish inventory report.
The markets have been very difficult to read the last few days. On what would seem to be bearish data, the market rallies, and what seems to be bullish data, the market sells off. There is an expectation that more rate cuts are coming in the next three weeks and investors are looking past the poor economic reports.
Tomorrow’s earnings reports include Sears, XM, Freddie Mac, Sprint, AIG, Viacom, Dell, Gap, and Kohl’s. In the morning we will also get the preliminary Q4 GDP number and the initial jobless claims number.
DJIA 12,694.28 +9.36 (+0.07%)
Nasdaq 2,354.47 +9.48 (+0.40%)
S&P 500 1,380.02 -1.27 (-0.09%)
2-Yr Bond 2.01% -0.03
10-Yr Bond 3.85% -0.03
30-Yr Bond 4.65% -0.01
Crude Oil (Apr) 99.64 -1.24
Gold (Apr) 961.00 +12.10
Virtually everyone was surprised the market didn't sell off more with all the bad economic data we got yesterday, and that's why you hear CNBC talking about a possible bottom.
ReplyDeleteToday the most important number of the week, initial jobless claims comes out. This is arguably the most important indicator, especially in times like this when you may be heading into a recession. The last thing we need is a glut of jobless people. That number will drive the market today barring any new headline news.