Negativity returned to the market today, but stocks managed to finish well off their lows. Stocks were down more than 3% this morning, but only finished down 1.5%. Even though stocks lost ground, there was no flight-to-quality trade as investors actually sold Treasurys today (yields up). When investors are willing to take on more risk – financials, growth names (infrastructure, energy, and materials), and emerging markets – the market will turn higher.
Down-beat news from Microsoft set the tone for the markets today. The company announced that it “will cut as many as 5,000 jobs, the first companywide firings in its 34-year history.” Net income for the fourth quarter was $0.47 per share, but analysts were looking for about $0.50. Revenue also fell short of expectations by about $500 million. The stock finished down 12% and did not rally when the market turned higher in the afternoon. It actually closed near its lows.
Recently, there has been a clear divide between the tech winners and losers. Winners: Apple, IBM, Google, Hewlett-Packard, and Research In Motion. Losers: Microsoft, Intel, Dell, and Yahoo.
Worse-than-expected economic data also weighed on the markets. Initial jobless claims were 589,000 last week – 46,000 more than expected. Also, continuing claims increased to 4.61 million. December housing starts and building permits were both below expectations. Crude oil inventories increased 6.1 million barrels last week – 4.7 million more than expected (Source: Briefing.com).
The most surprising news story of the day was John Thain, the former Merrill Lynch CEO, getting fired from Bank of America. Much controversy has surrounded the Bank of America acquisition of Merrill Lynch because Merrill reported a $15.4 billion fourth quarter loss. What problems did Merrill Lynch have that Bank of America did not know about? Was Merrill hiding something? On top of his firing, it was reported that Thain spent over $1.2 million to redecorate his office when he became CEO. He spent $87,000 on area rugs and $25,000 for a table. Ridiculous! He deserves to get fired.
After hours Google reported stellar earnings that handily beat expectations.
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