Market Summary: Mon. March 31, 2008

I’m pretty glad the first quarter came to an end today. For the last three months analyzing the fundamentals has been very difficult and many stocks have gotten beaten badly on little to no news just because the market has been down – mainly because of the struggling financial companies. However, the technology ETF was actually down more than the financial ETF in Q1!

Today, I believe we saw some unwinding of winning positions as investors re-positioned their money for the second quarter. Oil started the day up about $1, but eventually closed down $4 on no news. Natural gas finished the day up, though. The best energy-related stock with lots of natural gas exposure and a focus on exploration is Apache.

The biggest news on the commodity-front came from the U.S. Dept. of Agriculture. This year, farmers plan to plant 18% more soybeans and 8% more wheat. Corn acreage is expected to decrease 8%. Soybean and wheat futures are down almost 30% this month as investors expected farmers would chase the higher prices. Corn futures spiked to record highs on news of lowered supply. Remember, decreasing supply will increase price (Source: Bloomberg.com). The agriculture stocks like Monsanto, Potash, and Mosaic are buys on any dips. These companies have amazing pricing power and the agriculture boom is a long-term play until the government pulls the plug on ethanol.

The Chicago manufacturing data came in 48.2, better than the expected 46.0 reading. Last month’s reading was 44.5. A reading below 50 indicates the industry is contracting (Source: Briefing.com, Yahoo! Finance).

Lehman Brothers announced it would issue $3B of convertible preferred shares. “A group of large, long-term institutional investors in Lehman will receive a dividend yield of 7-7.5 percent, and the price being paid will mark a premium of between 30-35 percent on the shares” (CNBC.com). I don’t understand this move. Lehman just raised its dividend in January and now they are in need of more capital. How about you cut/remove the dividend?

Rumors were also circulating that UBS would write-down more than expected when they report earnings Tuesday. “Analysts expect UBS to write down between 10 billion Swiss francs ($10.03 billion) and 20 billion Swiss francs in ailing assets this year, in addition to $18 billion in 2007” (Source: CNBC.com). The problems at banks are years away from being solved and I’ll bet we see a wave of disappointing earnings reports from foreign banks.

Lastly, Treasury Secretary Hank Paulson proposed a new plan to regulate the U.S. financial system. He was quoted as saying, “Our major financial services companies are becoming larger, more complex and more difficult to manage…and the real threat to market stability is below ground, at the root level where the health of financial firms is intertwined” (Source: Bloomberg.com). Paulson basically called for much stricter regulation of banks, securities firms, and insurance companies by the Federal Reserve because the current system is outdated. He also called for a merger between the Securities Exchange Commission and the Commodity Futures Trading Commission (Source: CNBC.com).

We ended the first quarter on a positive note, but overall, it was an extremely tough market to navigate. Of the most closely followed sectors, industrials were the best performing – down about 2-3%! Look for a lot of volatility and price swings tomorrow as investors reposition for the new quarter.

In other news…

- Philip Morris International was spun-off from Altria today (Reuters.com)

- Citi is reorganizing its consumer banking and credit card divisions (Bloomberg.com)

- Merck and Schering-Plough got crushed after the effectiveness of their cholesterol drugs Vytorin and Zetia were questioned by doctors

- Wells Fargo’s CEO said on CNBC that it is very possible to see another collapse like Bear Stearns

DJIA 12,262.89 +46.49 (+0.38%)
Nasdaq 2,279.10 +17.92 (+0.79%)
S&P 500 1,322.70 +7.48 (+0.57%)
NYSE Volume 4,202,585,000

2-Yr Bond 1.62% -0.05
10-Yr Bond 3.45% -0.02
30-Yr Bond 4.30% -0.03

Dollar Index 71.802 +0.124
Crude Oil (May) 101.58 -4.04
Nat Gas (May) 10.101 +0.301
Gold (Apr) 916.20 -14.40