I thought today (at least the morning) was going to be very bad for stocks – basically a continuation of Friday’s sell-off. We didn’t get much help from foreign markets as Asian sold-off very hard. We had a weak open, choppy trading throughout the day, and ended essentially flat.
In economic news, January construction spending decreased 1.7%, much more than was expected and the homebuilders sold-off on this news. Also, the manufacturing data (ISM Index) came in at 48.3 pretty much in-line with expectations (Source: Bloomberg.com).
Today’s move was supported by gains in crude oil and gold (as well as other commodities) and further declines in the U.S. dollar exaggerated the commodities’ move.
Here are some pretty interesting excerpts from a finance.yahoo.com article (sorry, can’t link it because Yahoo! archives its articles differently than most sites – for more info, search “Oil Jumps to New Record on Dollar's Fall”):
“Many analysts believe oil prices aren't justified by crude's underlying supply and demand fundamentals, and are due to fall at some point. While supply disruptions in Nigeria and the prospect of supply cutoffs from Iraq and Venezuela helped boost oil prices last year, domestic oil inventories are now rising even as a number of forecasters are cutting their demand growth predictions due to the slowing economy.”
“…Analyst estimates vary widely, with some predicting an eventual decline to the $65 or $70 range as supplies continue to grow and demand falls, and others seeing oil rising as high as $120 as investment capital continues to flow into oil markets from overseas. For its part, the Energy Department's Energy Information Administration's latest prediction is that oil will average $86 a barrel in 2008, up 19 percent from 2007, when oil averaged $72 a barrel.”
“The average price of a gallon of gas stood at $3.165 Monday, according to AAA and the Oil Price Information Service. That's down 0.1 cent overnight, but up nearly 70 cents from a year ago. The Energy Department expects gas prices to peak near $3.40 this spring, well above May's record of $3.227, but some analysts predict prices could rise to nearly $4 a gallon.”
Tech stocks were the laggard today after Apple was downgraded. On positive was that CNBC commentators talked about Apple possibly announcing a stock repurchase program at their shareholders meeting tomorrow.
Also, in an interview with CNBC, Warren Buffett said that the
The major financial news came from Citigroup after the bank said Thornburg Mortgage might face bankruptcy after failing to meet $270 million of margin calls. TMA was down 56% on the day! Here’s the Bloomberg.com article describing Thornburg’s financial situation. Standard & Poor’s lowered Thornburg’s credit rating to B- from B. This is very bad news, and I’m surprised the entire market didn’t sell-off more after this report.
Ambac announced they would cut their quarterly dividend to 1 cent from 7 cents. Also, they plan on “suspending all new structured financial business for the next six months and will be discontinuing business in a number of sectors in the global structured finance market” (Source: Briefing.com). Ambac was down almost 11% for the day.
After hours, Intel decreased its Q1 profit forecast because of tightening margins. Look for tech to be the laggard tomorrow morning because of this news (Source: Bloomberg.com).
Everyone keeps talking about this “nice bottom” that we’ve established especially with today’s action (really bad news, but not too bad of a sell-off), but I’m not buying it. I think this is kind of the calm before another storm hits the market. There is so much financial distress in the markets right now, and the only news coming from the financial companies is bad news. The XLF is almost back to its January lows.
Also, gold’s run is pretty ridiculous. All the analysts are setting these outrageous price targets, but I’m approaching this play very cautiously. Commodities are traded very technically (people use the charts to trade) and I’ll take you back to oil’s run to $100. Crude oil hit $100 just like everyone thought it would and then it pulled back sharply and traded sideways for some time. Once oil broke through the $100 mark, it exploded upward. I feel this might be the same thing that happens to gold. Everyone has been talking about $1000 gold for some time and when we finally reach that level, I expect a pull back and some sideways trading. This prediction assumes that gold will only “touch” $1000, not “break through” $1000. We’ll have to wait and see how this hypothesis holds up.
DJIA 12,258.90 -7.49 (-0.06%)
Nasdaq 2,258.60 -12.88 (-0.57%)
S&P 500 1,331.34 +0.71 (+0.05%)
NYSE Volume 4,094,485,000
2-Yr Bond 1.61% -0.04
10-Yr Bond 3.54% +0.01
30-Yr Bond 4.42% +0.01
Crude Oil (Apr) 102.42 +0.58
Gold (Apr) 985.80 +10.80
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