The Dow industrials ended at a fresh six-year low Friday, as worries about the outlook for the banking sector exacerbated fears of a prolonged recession.
Treasury bond prices rallied, lowering the corresponding yields, and gold prices flirted with record highs as investors sought safety in hard assets.
The Dow Jones industrial average (INDU) lost 100 points, or 1.3%, closing at the lowest point since Oct. 9, 2002, at the bottom of the last bear market.
Since peaking at 14,164.53 in November of 2007, the Dow has lost 48%, as the recession, housing market collapse and banking crisis have all pummeled investor confidence.
The S&P 500 (SPX) index lost 9 points, or 1.1%, ending at the lowest point since Nov. 20, 2008, seen by some as the low of the current bear market.
The Nasdaq composite (COMP) lost 1 point or 0.1%, erasing bigger losses. The session low was 1416.96, which is still above the Nasdaq's low from January of this year. The tech sector has performed better in 2009 than the rest of the market.
Stocks had tumbled through the early afternoon on worries about the economy and the future of the biggest banks, amid talk that the government might have to nationalize the hardest-hit companies.
But stocks managed to cut losses and the Nasdaq turned higher for a while after White House spokesman Robert Gibbs reiterated that the administration believes in a privately held banking system.
The comments from Gibbs seemed to give investors a reason to stop selling off the banks so much and to get back into the market, said Joseph Saluzzi, co-head of equity trading at Themis Trading.
"The Gibbs' conference gave them an inkling of hope that the government won't nationalize the banks and that brought people back in," Saluzzi said.
However, the confidence problem that has been plaguing the markets remains in place for the time being, Saluzzi said.
"Without confidence, no one wants to step up and buy," he said.
Stocks have been sliding over the last few weeks as investors have shown skepticism about the government's ability to slow the recession, despite the announcement of a series of programs, including a massive economic stimulus package. Skepticism about CEOs is also a factor. And worries remain that another Ponzi scheme could be brewing, along the lines of Bernie Madoff or Robert Allen Stanford.
"The stimulus plan got more attention, but fixing the banking system in a way that's durable is the primary overhang in the markets right now," said Lee Schultheis, chief investment strategist at AIP Mutual Funds.
Financials: Bank, housing, insurance and other financial stocks have led the retreat this year and continued to do so Friday.
Bank stocks were hit especially hard Friday on worries that the government may have to nationalize certain flailing banks, a move that would wipe out shareholder value. Senate Banking Committee Chairman Chris Dodd, D-Conn., said that such short-term takeovers may be necessary. However, the White House is not in favor of such a move.
Dow components Bank of America (BAC, Fortune 500) Citigroup (C, Fortune 500), American Express (AXP, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) all tumbled through the afternoon. But all except Citigroup managed to cut losses by the close.
The selling in the bank sector has picked up in the last 10 days since Treasury announced a revamped bank bailout plan that critics say provides few essential details. In particular, the plan did not establish how to value the bad assets that are cluttering up bank balance sheets.
"Not only is a good solution required, but it has to happen quickly," Schultheis said. "Every day that goes by without action is adding to the deteriorating environment for corporate earnings, which is hurting stocks."
On Thursday, the Dow ended at the lowest point since Oct. 9, 2002, the low of the last bear market. The S&P ended the session at its lowest point since Nov. 20 of last year, when the panic around the financial crisis peaked.
Tech has performed better than the rest of the market and the Nasdaq stands almost 10% above its Nov. 20 close.
Over the last two weeks, the government has announced a number of programs meant to take the edge off the recession.
President Obama's $75 billion housing plan, announced Wednesday, is intended to help up to 9 million struggling borrowers. On Tuesday, Chrysler and GM asked for another $21.6 billion to stay afloat on top of the $17.4 billion in government assistance they have already received.
Investors are still sorting through the details of the $787 billion economic stimulus plan, signed into law Tuesday.
Company news: Lowe's (LOW, Fortune 500) reported weaker quarterly sales and earnings and issued a fiscal 2009 forecast that is short of analysts' expectations.
J.C. Penney (JCP, Fortune 500) reported higher-than-expected earnings but forecast a current-quarter loss that is bigger than what analysts are expecting.
General Motors (GM, Fortune 500) tumbled 11% on ongoing worries about its solvency, closing at a more than 70-year low, according to Dow Jones.
Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost three to one on volume of 2.12 billion shares. On the Nasdaq, decliners topped advancers by over 2 to 1 on volume of 2.57 billion shares.
Economy: The Consumer Price Index rose 0.3% in January, as expected, after falling 0.8% in December. The so-called Core CPI, which strips out volatile food and energy costs, rose 0.2% versus forecasts for a rise of 0.1%. Core CPI was flat in December.
Other markets: Treasury prices rallied, lowering the yield on the benchmark 10-year note to 2.79% from 2.81% Thursday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar gained versus the euro and the yen.
U.S. light crude oil for March delivery fell 54 cents to settle at $38.94 a barrel on the New York Mercantile Exchange after spiking 14% Thursday.
COMEX gold for April delivery rose $25.70 to settle at $1,002.20 an ounce, near an all-time high.
Friday, February 20, 2009
Saturday, February 14, 2009
Senate passes $787 billion stimulus bill
It's a done deal. Still controversial, but a done deal.
The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.
The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.
President Obama is expected to sign the bill into law soon.
"The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning.
The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.
"We've done something today that's transformational for the nation," said House Speaker Nancy Pelosi, D-Calif., in a press conference after the House vote.
During the House floor debate earlier on Friday, House Appropriations Committee Chairman David Obey, D-Wisc., characterized the bill as "the largest change in domestic policy since the 1930s."
Republican discontent
The bill's final passage would represent far less than the bipartisan victory Obama had hoped for weeks ago, a hope he tabled as it became clear that Republicans and some fiscally conservative Democrats were adamantly opposed to the size and contents of the bill.
Republican critics believe there are more targeted and effective ways to create jobs than the measures in the bill, including more spending on infrastructure and more tax relief.
They frequently cite the tag line to describe what Democrats have often said makes stimulus measures effective -- that they be timely, targeted and temporary. "This bill fails on all three points," Senate Minority Leader Mitch McConnell, R-Ky., said Friday.
In the House, Rep. Mike Pence, R-Ind., blasted the bill as misguided.
"Republicans are not about saying 'No' but about saying 'Yes' to solutions that put Americans back to work," Pence said. "[This legislation] will not grow our economy. It will grow our government."
And they frequently cite the burden of such an expensive package on the country's record high deficit and the burden that will place on the next generation.
In response to Republican critics, Sen. Dick Durbin, D-Ill., cited provisions in it that will help families facing job loss, education expenses and mortgage troubles.
"Consider the impact on the next generation if their parents lose a job ... if their home is foreclosed upon ... if they're forced out of college because their parents can't pay the bills," Durbin said.
Democrats have also countered the Republicans' debt argument by noting that record deficit levels were achieved as a result of borrowing to pay for the cost of the Iraq war and to finance a series of tax cuts -- both decisions made during a Republican administration.
The compromise bill was crafted after intensive negotiations in recent days between the House, Senate and White House, although Republicans said repeatedly they felt excluded from the process. And on Friday, several said they did not think it was fair that they were being asked to vote on a 1,000-page-plus bill that was posted online only late Thursday night.
How the bill breaks down
The package devotes $308.3 billion -- or 39% -- to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees.
It devotes another $267 billion -- or 34% -- on direct spending, including increased unemployment benefits and food stamps, CBO said.
And it provides $212 billion -- or 27% -- for tax breaks for individuals and businesses, although the biggest piece of that is for individuals. (Here's a quick breakdown of those breaks.)
Depending on how tax measures are categorized, the percentage of the bill devoted to tax relief is 35%, according to the Joint Committee on Taxation.
Unlike the CBO, the committee counts all portions of tax credits that are refundable. A refundable credit is one that may be paid to tax filers even if the credit exceeds a tax filer's liability. In other words, it is money the government needs to spend. The CBO, by contrast, treats that money as an outlay.
Republicans have advocated for more tax relief in the bill -- they wanted at least 40% -- and they often oppose tax credits going to those who pay less in income tax than they receive in refunds.
Democrats counter that the lowest-income families do pay money into the system by way of payroll tax for Social Security and through sales taxes. And they note that it is those low-income families most likely to quickly spend any tax relief they get, thereby making it more stimulative for the economy.
What it can - and can't do
For months, economists -- both liberal and conservative -- have urged lawmakers to act quickly to help stem the economic downturn. They argue that while tax cuts can be put out more quickly than infrastructure spending, they may not be as stimulative as spending because tax filers are likely to save at least a portion of what they receive.
There also has been debate over how large the total package should be. Many economists think it should be larger -- to help combat what is expected to be a $2 trillion shortfall in the country's output this year and next. But at this point, though they're not enamored with every provision in the bill -- they say it's necessary to do something.
Proponents of the bill aren't promising the economic recovery package will be a panacea for the economy. "No one thinks this is the answer," said House Majority Whip Steny Hoyer, D-Md.
But, they say, it's needed to stem the downturn and ease the financial strains hurting Americans. Indeed, Obama's economic team last month said they expect that the unemployment rate likely will go up in the near term but having a stimulus package could bring it down to around 7% by the end of 2010. That's slightly below the rate of 7.6% today.
The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.
The bill got 60 votes -- the minimum it needed to pass. Three Republicans -- Sens. Susan Collins, R-Me., Arlen Specter, R-Pa., and Olympia Snowe, R-Me. -- voted for it. Earlier in the day, no Republicans in the House voted for the legislation, which nevertheless passed 246 to 183, with just 7 Democrats voting against it.
President Obama is expected to sign the bill into law soon.
"The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: repairing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning.
The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.
"We've done something today that's transformational for the nation," said House Speaker Nancy Pelosi, D-Calif., in a press conference after the House vote.
During the House floor debate earlier on Friday, House Appropriations Committee Chairman David Obey, D-Wisc., characterized the bill as "the largest change in domestic policy since the 1930s."
Republican discontent
The bill's final passage would represent far less than the bipartisan victory Obama had hoped for weeks ago, a hope he tabled as it became clear that Republicans and some fiscally conservative Democrats were adamantly opposed to the size and contents of the bill.
Republican critics believe there are more targeted and effective ways to create jobs than the measures in the bill, including more spending on infrastructure and more tax relief.
They frequently cite the tag line to describe what Democrats have often said makes stimulus measures effective -- that they be timely, targeted and temporary. "This bill fails on all three points," Senate Minority Leader Mitch McConnell, R-Ky., said Friday.
In the House, Rep. Mike Pence, R-Ind., blasted the bill as misguided.
"Republicans are not about saying 'No' but about saying 'Yes' to solutions that put Americans back to work," Pence said. "[This legislation] will not grow our economy. It will grow our government."
And they frequently cite the burden of such an expensive package on the country's record high deficit and the burden that will place on the next generation.
In response to Republican critics, Sen. Dick Durbin, D-Ill., cited provisions in it that will help families facing job loss, education expenses and mortgage troubles.
"Consider the impact on the next generation if their parents lose a job ... if their home is foreclosed upon ... if they're forced out of college because their parents can't pay the bills," Durbin said.
Democrats have also countered the Republicans' debt argument by noting that record deficit levels were achieved as a result of borrowing to pay for the cost of the Iraq war and to finance a series of tax cuts -- both decisions made during a Republican administration.
The compromise bill was crafted after intensive negotiations in recent days between the House, Senate and White House, although Republicans said repeatedly they felt excluded from the process. And on Friday, several said they did not think it was fair that they were being asked to vote on a 1,000-page-plus bill that was posted online only late Thursday night.
How the bill breaks down
The package devotes $308.3 billion -- or 39% -- to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastructure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees.
It devotes another $267 billion -- or 34% -- on direct spending, including increased unemployment benefits and food stamps, CBO said.
And it provides $212 billion -- or 27% -- for tax breaks for individuals and businesses, although the biggest piece of that is for individuals. (Here's a quick breakdown of those breaks.)
Depending on how tax measures are categorized, the percentage of the bill devoted to tax relief is 35%, according to the Joint Committee on Taxation.
Unlike the CBO, the committee counts all portions of tax credits that are refundable. A refundable credit is one that may be paid to tax filers even if the credit exceeds a tax filer's liability. In other words, it is money the government needs to spend. The CBO, by contrast, treats that money as an outlay.
Republicans have advocated for more tax relief in the bill -- they wanted at least 40% -- and they often oppose tax credits going to those who pay less in income tax than they receive in refunds.
Democrats counter that the lowest-income families do pay money into the system by way of payroll tax for Social Security and through sales taxes. And they note that it is those low-income families most likely to quickly spend any tax relief they get, thereby making it more stimulative for the economy.
What it can - and can't do
For months, economists -- both liberal and conservative -- have urged lawmakers to act quickly to help stem the economic downturn. They argue that while tax cuts can be put out more quickly than infrastructure spending, they may not be as stimulative as spending because tax filers are likely to save at least a portion of what they receive.
There also has been debate over how large the total package should be. Many economists think it should be larger -- to help combat what is expected to be a $2 trillion shortfall in the country's output this year and next. But at this point, though they're not enamored with every provision in the bill -- they say it's necessary to do something.
Proponents of the bill aren't promising the economic recovery package will be a panacea for the economy. "No one thinks this is the answer," said House Majority Whip Steny Hoyer, D-Md.
But, they say, it's needed to stem the downturn and ease the financial strains hurting Americans. Indeed, Obama's economic team last month said they expect that the unemployment rate likely will go up in the near term but having a stimulus package could bring it down to around 7% by the end of 2010. That's slightly below the rate of 7.6% today.
Friday, February 6, 2009
Oil dips to $40 a barrel
Oil slipped towards $40 a barrel Friday as the weakening economic outlook overshadowed OPEC's attempts to curb crude supplies and boost prices.
U.S. light crude for March delivery fell $1.01 to $40.16 a barrel by 5:52 a.m. ET.
Inventories in Cushing, Okla.-- the delivery point for the U.S. light crude contract -- are at record levels. U.S. light crude for delivery in two months time is trading above $45 a barrel.
The global economic slowdown has curbed demand for fuel around the world, knocking oil prices sharply lower since they peaked at almost $150 in July.
U.S. non-farm payroll numbers due later Friday are expected to add to the gloom, after data released the previous day showed applications for U.S. jobless benefits hit a 26-year high while German manufacturing suffered its largest fall since 1990.
Oil prices could stay as low as $40 a barrel for the rest of 2009, the head of Italy's largest oil company said Friday.
"A price of $40 a barrel, it's roughly my forecast for this year," Eni SpA Chief Executive Paolo Scaroni said during an address at a Confindustria conference.
The Organization of the Petroleum Exporting Countries has been cutting oil output in a bid to boost prices. OPEC sources have indicated the group could cut a further 1 million barrels per day (bpd) from output quotas when it next meets in March.
OPEC has already cut member production quotas by 4.2 million bpd since September, but oil tanker tracking firms have said the group has yet to successfully implement all of its cuts.
"OPEC's compliance has been impressive even if they've still got some way to go," Julian Keites at Newedge in London said.
"These are significant output cuts and if they can implement more then we should see global stock cover start to come down. Until then prices seem well supported above $40 a barrel by the cuts so far."
Democrats in the Senate on Thursday pushed towards passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.
U.S. light crude for March delivery fell $1.01 to $40.16 a barrel by 5:52 a.m. ET.
Inventories in Cushing, Okla.-- the delivery point for the U.S. light crude contract -- are at record levels. U.S. light crude for delivery in two months time is trading above $45 a barrel.
The global economic slowdown has curbed demand for fuel around the world, knocking oil prices sharply lower since they peaked at almost $150 in July.
U.S. non-farm payroll numbers due later Friday are expected to add to the gloom, after data released the previous day showed applications for U.S. jobless benefits hit a 26-year high while German manufacturing suffered its largest fall since 1990.
Oil prices could stay as low as $40 a barrel for the rest of 2009, the head of Italy's largest oil company said Friday.
"A price of $40 a barrel, it's roughly my forecast for this year," Eni SpA Chief Executive Paolo Scaroni said during an address at a Confindustria conference.
The Organization of the Petroleum Exporting Countries has been cutting oil output in a bid to boost prices. OPEC sources have indicated the group could cut a further 1 million barrels per day (bpd) from output quotas when it next meets in March.
OPEC has already cut member production quotas by 4.2 million bpd since September, but oil tanker tracking firms have said the group has yet to successfully implement all of its cuts.
"OPEC's compliance has been impressive even if they've still got some way to go," Julian Keites at Newedge in London said.
"These are significant output cuts and if they can implement more then we should see global stock cover start to come down. Until then prices seem well supported above $40 a barrel by the cuts so far."
Democrats in the Senate on Thursday pushed towards passage of a huge economic stimulus package despite scant Republican support, hoping to boost the U.S. economy, which could help stem a decline in fuel demand.
Wednesday, January 28, 2009
Stocks stage rally
Stocks surged Wednesday as investors took comfort in reports that the Obama administration and the Federal Reserve are taking steps to get credit flowing again and help staunch the economic slowdown.
The Dow Jones industrial average (INDU) gained 200 points, or 2.5%, according to early tallies. The Standard & Poor's 500 (SPX) index added 28 points, or 3.4% and the Nasdaq composite (COMP) added 53 points or 3.6%.
Stocks rallied through the early afternoon as more talk of the government taking toxic assets off bank balance sheets boosted the financial sector and the broader market.
Those gains were sustained through the close after the Federal Reserve kept a key short-term interest rate at all-time lows and pledged it was willing to do whatever it can to help get credit flowing again.
Treasury bond prices tumbled, boosting the corresponding yields, after the Fed statement implied that the bank was willing to buy long-term Treasury bonds, but did not indicate that it was planning to do so in the near term.
Oil prices gained and gold prices declined. The dollar strengthened versus other major currencies.
After the close, Starbucks (SBUX, Fortune 500) reported quarterly sales and earnings that were short of forecasts and said it was cutting 6,000 jobs in 2009.
Fed: The central bank kept the fed funds rate unchanged near 0%, as expected. The Fed funds rate is a key short-term bank lending rate that impacts consumer and business loans. (Full story)
In its statement, the Fed painted a more dire picture of the economy than it has in recent months. The statement noted that industrial production, housing starts and employment have continued to decline steeply as spending has been cut back. Global demand has slowed. And falling oil and gas prices have added to the growing risk of so-called deflation. (Read the statement)
The Fed also said it was willing to take more steps to get credit flowing again, including buying long-term Treasurys, if it decides such a move would help improve conditions.
"I think the fact that they went into such detail about the tools they are considering may have confused people, but to me it says that they are trying to restore confidence," said Phil Dow, director of equity research at RBC Wealth Management.
"Bad bank" boost: Stocks had already rallied Wednesday ahead of the announcement, extending the market's recent advance. All three major gauges posted modest gains on Monday and Tuesday despite weak economic reports, quarterly results and thousands of job cuts.
Wednesday's advance was led by news from the banking industry. Reports continued to surface that the Treasury Department was moving forward on setting up a "bad bank" to buy up the industry's toxic assets. A published report Wednesday suggested that the Federal Deposit Insurance Corp. (FDIC) would take control of any such bank. The FDIC told Reuters it wouldn't comment.
"Wall Street likes the 'bad bank' stuff," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "It's still just a rumor, but a lot of people are betting on it being true, and they like the idea of it."
He said that longer term, it isn't clear whether the "bad bank" idea will really work, and that stocks will remain under pressure until the housing market bottoms and unemployment stops spiking.
For now, however, the talk was fueling a short-covering rally. Short-covering refers to a process by which investors who have sold shares short to take advantage of a falling market need to buy the shares back as the market reverses course.
Optimism about the Obama administration's stimulus plan and Wells Fargo's better-than-expected quarterly results also added to the advance.
Economic stimulus plan: The House of Representatives is expected to vote Wednesday evening on the $825 billion stimulus package developed by President Obama and House Democrats. The plan, which calls for roughly $550 billion in spending and $275 billion in tax cuts, is expected to pass easily, thanks to the Democratic majority in the House.
However, the House vote is just the first step in a process that will take several weeks. The Senate is debating a separate-but-similar version of the bill, to be voted on next week. If both versions pass, differences would have to be resolved in conference committee. Both chambers would then have to vote on the new version. The goal is to get a bill to Obama to sign by mid-February. (Full story)
Wells Fargo: The bank posted a steep $2.6 billion quarterly loss Wednesday, hurt partly by its purchase of Wachovia. But excluding charges, Wells Fargo earned 41 cents per share, in line with a year earlier, and better than the 33 cents analysts surveyed by Thomson Reuters expected.
The bank also maintained its dividend and said it has no plans to ask for more Treasury bailout money beyond the $25 billion it accepted last year. Wells (WFC, Fortune 500) shares rallied 25%.
Among other bank movers, Bank of America (BAC, Fortune 500) added 13% and Citigroup (C, Fortune 500) added 15%. Both stocks have been among the hardest-hit financial stocks this year.
American Express (AXP, Fortune 500) jumped 5%, one day after it reported quarterly results that weren't as terrible as some had expected.
The KBW Bank (BKX) sector index jumped 12%.
In other banking news, the Treasury Department said it has made $386 million available to healthy local banks as a means of stimulating lending.
Earnings: Dow component AT&T (T, Fortune 500) reported lower quarterly earnings and higher revenue, both of which missed expectations. The telecom leader saw strong growth in its wireless subscribers, but its profit fell due to subsidies it had to pay to support Apple's iPhone. Shares fell 1.5%.
Boeing (BA, Fortune 500) reported a fourth-quarter loss Wednesday as a two-month strike by its assembly workers and delivery delays hurt its results. The aerospace firm forecast 2009 earnings that are short of expectations. Boeing also said it would cut 10,000 jobs this year, mostly in the first half. The number includes 4,500 job cuts already announced in early January. Boeing shares were little changed.
Yahoo (YHOO, Fortune 500) reported quarterly sales and earnings that topped estimates after the close Tuesday. Including charges, the company reported a loss. Shares gained 8% Wednesday.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.62% from 2.52% Tuesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates were mixed. The 3-month Libor rate dipped to 1.17% from 1.18% Tuesday, according to Bloomberg.com. Overnight Libor held steady at 0.22%. Libor is a bank-to-bank lending rate.
Other markets: In global trading, Asian markets were mixed and most European markets rallied.
The dollar gained versus the euro and the yen.
U.S. light crude oil for March delivery rose 58 cents to $42.16 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery fell $11.40 to $890 an ounce.
Gasoline prices rose two-tenths of a cent to a national average of $1.842 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.
The Dow Jones industrial average (INDU) gained 200 points, or 2.5%, according to early tallies. The Standard & Poor's 500 (SPX) index added 28 points, or 3.4% and the Nasdaq composite (COMP) added 53 points or 3.6%.
Stocks rallied through the early afternoon as more talk of the government taking toxic assets off bank balance sheets boosted the financial sector and the broader market.
Those gains were sustained through the close after the Federal Reserve kept a key short-term interest rate at all-time lows and pledged it was willing to do whatever it can to help get credit flowing again.
Treasury bond prices tumbled, boosting the corresponding yields, after the Fed statement implied that the bank was willing to buy long-term Treasury bonds, but did not indicate that it was planning to do so in the near term.
Oil prices gained and gold prices declined. The dollar strengthened versus other major currencies.
After the close, Starbucks (SBUX, Fortune 500) reported quarterly sales and earnings that were short of forecasts and said it was cutting 6,000 jobs in 2009.
Fed: The central bank kept the fed funds rate unchanged near 0%, as expected. The Fed funds rate is a key short-term bank lending rate that impacts consumer and business loans. (Full story)
In its statement, the Fed painted a more dire picture of the economy than it has in recent months. The statement noted that industrial production, housing starts and employment have continued to decline steeply as spending has been cut back. Global demand has slowed. And falling oil and gas prices have added to the growing risk of so-called deflation. (Read the statement)
The Fed also said it was willing to take more steps to get credit flowing again, including buying long-term Treasurys, if it decides such a move would help improve conditions.
"I think the fact that they went into such detail about the tools they are considering may have confused people, but to me it says that they are trying to restore confidence," said Phil Dow, director of equity research at RBC Wealth Management.
"Bad bank" boost: Stocks had already rallied Wednesday ahead of the announcement, extending the market's recent advance. All three major gauges posted modest gains on Monday and Tuesday despite weak economic reports, quarterly results and thousands of job cuts.
Wednesday's advance was led by news from the banking industry. Reports continued to surface that the Treasury Department was moving forward on setting up a "bad bank" to buy up the industry's toxic assets. A published report Wednesday suggested that the Federal Deposit Insurance Corp. (FDIC) would take control of any such bank. The FDIC told Reuters it wouldn't comment.
"Wall Street likes the 'bad bank' stuff," said Joseph Saluzzi, co-head of equity trading at Themis Trading. "It's still just a rumor, but a lot of people are betting on it being true, and they like the idea of it."
He said that longer term, it isn't clear whether the "bad bank" idea will really work, and that stocks will remain under pressure until the housing market bottoms and unemployment stops spiking.
For now, however, the talk was fueling a short-covering rally. Short-covering refers to a process by which investors who have sold shares short to take advantage of a falling market need to buy the shares back as the market reverses course.
Optimism about the Obama administration's stimulus plan and Wells Fargo's better-than-expected quarterly results also added to the advance.
Economic stimulus plan: The House of Representatives is expected to vote Wednesday evening on the $825 billion stimulus package developed by President Obama and House Democrats. The plan, which calls for roughly $550 billion in spending and $275 billion in tax cuts, is expected to pass easily, thanks to the Democratic majority in the House.
However, the House vote is just the first step in a process that will take several weeks. The Senate is debating a separate-but-similar version of the bill, to be voted on next week. If both versions pass, differences would have to be resolved in conference committee. Both chambers would then have to vote on the new version. The goal is to get a bill to Obama to sign by mid-February. (Full story)
Wells Fargo: The bank posted a steep $2.6 billion quarterly loss Wednesday, hurt partly by its purchase of Wachovia. But excluding charges, Wells Fargo earned 41 cents per share, in line with a year earlier, and better than the 33 cents analysts surveyed by Thomson Reuters expected.
The bank also maintained its dividend and said it has no plans to ask for more Treasury bailout money beyond the $25 billion it accepted last year. Wells (WFC, Fortune 500) shares rallied 25%.
Among other bank movers, Bank of America (BAC, Fortune 500) added 13% and Citigroup (C, Fortune 500) added 15%. Both stocks have been among the hardest-hit financial stocks this year.
American Express (AXP, Fortune 500) jumped 5%, one day after it reported quarterly results that weren't as terrible as some had expected.
The KBW Bank (BKX) sector index jumped 12%.
In other banking news, the Treasury Department said it has made $386 million available to healthy local banks as a means of stimulating lending.
Earnings: Dow component AT&T (T, Fortune 500) reported lower quarterly earnings and higher revenue, both of which missed expectations. The telecom leader saw strong growth in its wireless subscribers, but its profit fell due to subsidies it had to pay to support Apple's iPhone. Shares fell 1.5%.
Boeing (BA, Fortune 500) reported a fourth-quarter loss Wednesday as a two-month strike by its assembly workers and delivery delays hurt its results. The aerospace firm forecast 2009 earnings that are short of expectations. Boeing also said it would cut 10,000 jobs this year, mostly in the first half. The number includes 4,500 job cuts already announced in early January. Boeing shares were little changed.
Yahoo (YHOO, Fortune 500) reported quarterly sales and earnings that topped estimates after the close Tuesday. Including charges, the company reported a loss. Shares gained 8% Wednesday.
Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.62% from 2.52% Tuesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates were mixed. The 3-month Libor rate dipped to 1.17% from 1.18% Tuesday, according to Bloomberg.com. Overnight Libor held steady at 0.22%. Libor is a bank-to-bank lending rate.
Other markets: In global trading, Asian markets were mixed and most European markets rallied.
The dollar gained versus the euro and the yen.
U.S. light crude oil for March delivery rose 58 cents to $42.16 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery fell $11.40 to $890 an ounce.
Gasoline prices rose two-tenths of a cent to a national average of $1.842 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.
Monday, January 26, 2009
Economists: Recession getting worse
Economists expect an already deep recession to get even worse in 2009, according to a survey released Monday.
Companies will lay off more workers and hoard more cash during the next 12 months, according to the National Association for Business Economics survey, a quarterly take from a panel of economists at private-sector companies in various industries. A vast majority of the 105 economists polled believe the country's gross domestic product will continue to sink in 2009.
If business conditions indeed worsen during the year, they will be sinking from already historic lows. The survey's measures of consumer demand, profit margins and capital expenditures all hit their lowest-ever levels in January's edition of the 27-year old survey.
"NABE's January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008," said Sara Johnson, a NABE economist.
Nearly half - 47% - of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey. Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.
Credit conditions hurt businesses, according to the economists, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.
Pessimistic outlook on weak environment
With business conditions souring, the outlook for jobs has grown increasingly negative. 39% of economists believe their industries will lay off employees in the next six months, compared with 32% in October.
The forecast was particularly poor for the goods-producing sector, in which 69% of economists saw layoffs in the future, and no one believed the industry would be adding jobs. Service-sector economists were the most optimistic, with only 9% seeing layoffs and 29% saying their industry would be hiring in the next six months.
Companies will likely curtail spending in the coming months as well, according to the survey. 44% of the economists believed capital spending in their industries would fall off in the coming year, compared with just 16% who believed their businesses would increase spending.
Rising unemployment, tightening credit conditions and a difficult lending environment led economists to give a more pessimistic outlook on growth for 2009.
Just 22% believed the U.S. economy would expand this year, down from 62% who thought so in October. Although 26% now believe the economy will shrink less than 1% this year, 52% now think the economy will shrink by more than 1%, which no one predicted in October.
Companies will lay off more workers and hoard more cash during the next 12 months, according to the National Association for Business Economics survey, a quarterly take from a panel of economists at private-sector companies in various industries. A vast majority of the 105 economists polled believe the country's gross domestic product will continue to sink in 2009.
If business conditions indeed worsen during the year, they will be sinking from already historic lows. The survey's measures of consumer demand, profit margins and capital expenditures all hit their lowest-ever levels in January's edition of the 27-year old survey.
"NABE's January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008," said Sara Johnson, a NABE economist.
Nearly half - 47% - of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey. Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.
Credit conditions hurt businesses, according to the economists, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.
Pessimistic outlook on weak environment
With business conditions souring, the outlook for jobs has grown increasingly negative. 39% of economists believe their industries will lay off employees in the next six months, compared with 32% in October.
The forecast was particularly poor for the goods-producing sector, in which 69% of economists saw layoffs in the future, and no one believed the industry would be adding jobs. Service-sector economists were the most optimistic, with only 9% seeing layoffs and 29% saying their industry would be hiring in the next six months.
Companies will likely curtail spending in the coming months as well, according to the survey. 44% of the economists believed capital spending in their industries would fall off in the coming year, compared with just 16% who believed their businesses would increase spending.
Rising unemployment, tightening credit conditions and a difficult lending environment led economists to give a more pessimistic outlook on growth for 2009.
Just 22% believed the U.S. economy would expand this year, down from 62% who thought so in October. Although 26% now believe the economy will shrink less than 1% this year, 52% now think the economy will shrink by more than 1%, which no one predicted in October.
Thursday, January 22, 2009
Housing stocks: No bottom yet
With another dismal read Thursday on new home construction, it looks like 2009 will be a rough year for homebuilders. But recent rallies in housing stocks suggest that investors think otherwise.
Don't bet on it, says housing analyst Ivy Zelman.
Housing permits and starts both tumbled to record lows in December, according to a Commerce Department report on Thursday. With foreclosures surging and a glut of homes on the market, Zelman believes the overall pain will continue well into 2010 - and that the market won't bounce back until 2012.
Zelman, who decried speculation earlier than most other analysts, is known for her candor. Before starting her own research company, Zelman & Associates, in 2007, she spent ten years at Credit Suisse, where she began warning about speculation in 2004. Zelman called for a sell off of all builders in 2006 - well before many other analysts urged their clients to dump homebuilder stocks.
Two years ago, when Toll Brothers' CEO Robert Toll said in an earnings call that there was pent-up demand for housing, Zelman famously told him, "I'm wondering which Kool-Aid you're drinking - because I want some." The next year, Toll Brothers posted a 95% drop in profits.
Signs of a recovery?
Few in the housing industry are still drunk with optimism, but recent upswings suggest that investors are dipping their toes back in market. The S&P Homebuilders' Index rose 15% in December (it fell 36% in 2008). Toll Brothers and Pulte Homes, two major building companies, were, respectively, the 12th and 14th best stock performers in the Fortune 500 last year.
But according to Zelman, it's way too soon for a rebound. "The economics don't make sense," she says. "There's still a tsunami of expected foreclosures, and that has to abate before there's a recovery." Credit Suisse forecasted in December that, over the next four years, 8.1 million mortgages would go into foreclosure.
When foreclosures hit, cheap houses that banks are eager to unload flood the market. The oversupply and the lack of demand pushes prices down; the S&P Case Schiller Home Price Index showed an 18% year-over-year drop in October, (the most recent data available). As home values fall, homeowners owe more in mortgages than their properties are worth and are more likely to default - and then the cycle begins all over again.
While declining home prices hurt homeowners, they can boost sales - as evidenced in Southern California, where new home sales were up 50% in December compared with last year, according to MDA DataQuick, a real estate research firm.
But Zelman casts a critical eye on those who think cheap houses signal a revival. "Affordability is being paraded as the best thing," she says. "That may be so nationally, but it's skewed to areas where prices overshot."
She points to Fort Myers, Fl., where she says 80% of sellers are listing their homes at prices that are still 20% higher than they should be. Zelman believes that prices must overshoot on the way down, just as they did on the way up - and price deflation, she says, has a long way to go.
What to look for
Instead of affordability, Zelman sees new home sales per neighborhood as a leading indicator for the housing market. Of the 19,926 homes sold in Southern California last month, for example, just 1,813 were newly-built, compared with a December average of 4,926.
Most of the houses being scooped up are foreclosed houses, which Zelman believes are being bought by investors. When new home sales go up, she says, it will be a sign that homeowners are selling their existing homes.
The other indicator that Zelman is watching is the consumer balance sheet, or the average home buyer's debt level. "The consumer has terrible, crazy credit right now," she says. "And there's a negative psyche towards their deflating asset - that keeps homeowners on the sidelines, because foreclosures are driving prices lower, jobs are being lost, and 401(ks) are being eroded."
Signs of a consumer recovery, says Zelman, include an increase in personal savings rate and higher lending levels.
Zelman doesn't believe that any of the proposed stimulus measures on the federal or state level, aside from "the government bulldozing foreclosed houses or buying them up," are substantial enough to stop the downward spiral. She projects that just under half of all private homebuilders - which compose 75% of the industry - will go out of business by the time the market bottoms. That creates market opportunity for the surviving builders, but not for several more years.
"Right now, I don't like the builders as investments," says Zelman. The only "investable company" right now, she says, is Virginia based NVR, which she believes is better suited to weather the storm because it's positioned in healthier markets such as Washington D.C. Other relatively healthy markets, she says, include Texas and Salt Lake City.
For now, Zelman remains bearish towards the rest of the sector - just as she has been for four years. "There's still a lot of false optimism," she says. "Some economists believe that we're close to a bottom, but we're just more than halfway there."
Don't bet on it, says housing analyst Ivy Zelman.
Housing permits and starts both tumbled to record lows in December, according to a Commerce Department report on Thursday. With foreclosures surging and a glut of homes on the market, Zelman believes the overall pain will continue well into 2010 - and that the market won't bounce back until 2012.
Zelman, who decried speculation earlier than most other analysts, is known for her candor. Before starting her own research company, Zelman & Associates, in 2007, she spent ten years at Credit Suisse, where she began warning about speculation in 2004. Zelman called for a sell off of all builders in 2006 - well before many other analysts urged their clients to dump homebuilder stocks.
Two years ago, when Toll Brothers' CEO Robert Toll said in an earnings call that there was pent-up demand for housing, Zelman famously told him, "I'm wondering which Kool-Aid you're drinking - because I want some." The next year, Toll Brothers posted a 95% drop in profits.
Signs of a recovery?
Few in the housing industry are still drunk with optimism, but recent upswings suggest that investors are dipping their toes back in market. The S&P Homebuilders' Index rose 15% in December (it fell 36% in 2008). Toll Brothers and Pulte Homes, two major building companies, were, respectively, the 12th and 14th best stock performers in the Fortune 500 last year.
But according to Zelman, it's way too soon for a rebound. "The economics don't make sense," she says. "There's still a tsunami of expected foreclosures, and that has to abate before there's a recovery." Credit Suisse forecasted in December that, over the next four years, 8.1 million mortgages would go into foreclosure.
When foreclosures hit, cheap houses that banks are eager to unload flood the market. The oversupply and the lack of demand pushes prices down; the S&P Case Schiller Home Price Index showed an 18% year-over-year drop in October, (the most recent data available). As home values fall, homeowners owe more in mortgages than their properties are worth and are more likely to default - and then the cycle begins all over again.
While declining home prices hurt homeowners, they can boost sales - as evidenced in Southern California, where new home sales were up 50% in December compared with last year, according to MDA DataQuick, a real estate research firm.
But Zelman casts a critical eye on those who think cheap houses signal a revival. "Affordability is being paraded as the best thing," she says. "That may be so nationally, but it's skewed to areas where prices overshot."
She points to Fort Myers, Fl., where she says 80% of sellers are listing their homes at prices that are still 20% higher than they should be. Zelman believes that prices must overshoot on the way down, just as they did on the way up - and price deflation, she says, has a long way to go.
What to look for
Instead of affordability, Zelman sees new home sales per neighborhood as a leading indicator for the housing market. Of the 19,926 homes sold in Southern California last month, for example, just 1,813 were newly-built, compared with a December average of 4,926.
Most of the houses being scooped up are foreclosed houses, which Zelman believes are being bought by investors. When new home sales go up, she says, it will be a sign that homeowners are selling their existing homes.
The other indicator that Zelman is watching is the consumer balance sheet, or the average home buyer's debt level. "The consumer has terrible, crazy credit right now," she says. "And there's a negative psyche towards their deflating asset - that keeps homeowners on the sidelines, because foreclosures are driving prices lower, jobs are being lost, and 401(ks) are being eroded."
Signs of a consumer recovery, says Zelman, include an increase in personal savings rate and higher lending levels.
Zelman doesn't believe that any of the proposed stimulus measures on the federal or state level, aside from "the government bulldozing foreclosed houses or buying them up," are substantial enough to stop the downward spiral. She projects that just under half of all private homebuilders - which compose 75% of the industry - will go out of business by the time the market bottoms. That creates market opportunity for the surviving builders, but not for several more years.
"Right now, I don't like the builders as investments," says Zelman. The only "investable company" right now, she says, is Virginia based NVR, which she believes is better suited to weather the storm because it's positioned in healthier markets such as Washington D.C. Other relatively healthy markets, she says, include Texas and Salt Lake City.
For now, Zelman remains bearish towards the rest of the sector - just as she has been for four years. "There's still a lot of false optimism," she says. "Some economists believe that we're close to a bottom, but we're just more than halfway there."
Tuesday, January 13, 2009
Treasury: $10B more to B of A
The Treasury Department said Tuesday it recently invested $14.8 billion in another 43 banks, $10 billion of which went to Bank of America, the nation's largest bank.
Under the $700 billion Troubled Asset Relief Program, Treasury has allocated $250 billion for capital investments in banks.
Treasury lends funds to banks in exchange for preferred shares, warrants, and high-paying dividends. The aim: to encourage strapped-for-cash financial institutions to lend more money and provide much-needed liquidity in the financial markets.
As of Tuesday, the government has injected $192.3 billion into 257 banks.
The $10 billion that went to Bank of America in the latest round of capital injections was previously allotted to investment bank Merrill Lynch, which Bank of America purchased on Jan. 1. Treasury said it delayed delivering the funds to BofA until the merger with Merrill was completed. Tuesday's was the first round of capital injections since the merger.
Bank of America (BAC, Fortune 500) previously received a $15 billion investment from Treasury on Oct. 28, as part of the first round of capital injections that went to eight of the largest U.S. banks. With the $10 billion it received Tuesday, Bank of America matches the $25 billion also received by Wells Fargo (WFC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). Citigroup (C, Fortune 500) received $45 billion after an initial $25 billion investment and a $20 billion emergency loan under a different division of TARP.
Some critics object to the biggest banks receiving the largest sums of money. CEOs from smaller banks and organizations representing small bank managers testified before the House Financial Services Committee Tuesday, arguing that smaller banks are in greater need of investment from the Treasury than larger banks, and have largely been shut out of the TARP allocation process.
Furthermore, some members of Congress and oversight officials have said the plan lacks the ability to determine whether the money lent to banks is being used for its intended purpose.
The capital investment plan has received the largest portion of the $700 billion bailout money so far. But it was not part of Treasury's initial strategy, which included buying up droves of toxic mortgage-backed securities. The Treasury soon abandoned its initial bid, saying capital injections served as the best method of restoring the financial markets to normalcy.
Also in the latest round, American Express Corp. (AXP, Fortune 500) received $3.4 billion, which the company announced in December it would eventually get. The credit card company became eligible for TARP funds after it received Federal Reserve approval to become a bank holding company on Nov. 10.
Other banks receiving more than $100 million in TARP investments were Hermitage, Penn.-based F.N.B. Corporation (FNB), Honolulu-based Central Pacific Financial Corp. (CPF), Akron, Ohio-based FirstMerit Corporation (FMER), and privately held New York Private Bank & Trust Corporation
Under the $700 billion Troubled Asset Relief Program, Treasury has allocated $250 billion for capital investments in banks.
Treasury lends funds to banks in exchange for preferred shares, warrants, and high-paying dividends. The aim: to encourage strapped-for-cash financial institutions to lend more money and provide much-needed liquidity in the financial markets.
As of Tuesday, the government has injected $192.3 billion into 257 banks.
The $10 billion that went to Bank of America in the latest round of capital injections was previously allotted to investment bank Merrill Lynch, which Bank of America purchased on Jan. 1. Treasury said it delayed delivering the funds to BofA until the merger with Merrill was completed. Tuesday's was the first round of capital injections since the merger.
Bank of America (BAC, Fortune 500) previously received a $15 billion investment from Treasury on Oct. 28, as part of the first round of capital injections that went to eight of the largest U.S. banks. With the $10 billion it received Tuesday, Bank of America matches the $25 billion also received by Wells Fargo (WFC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). Citigroup (C, Fortune 500) received $45 billion after an initial $25 billion investment and a $20 billion emergency loan under a different division of TARP.
Some critics object to the biggest banks receiving the largest sums of money. CEOs from smaller banks and organizations representing small bank managers testified before the House Financial Services Committee Tuesday, arguing that smaller banks are in greater need of investment from the Treasury than larger banks, and have largely been shut out of the TARP allocation process.
Furthermore, some members of Congress and oversight officials have said the plan lacks the ability to determine whether the money lent to banks is being used for its intended purpose.
The capital investment plan has received the largest portion of the $700 billion bailout money so far. But it was not part of Treasury's initial strategy, which included buying up droves of toxic mortgage-backed securities. The Treasury soon abandoned its initial bid, saying capital injections served as the best method of restoring the financial markets to normalcy.
Also in the latest round, American Express Corp. (AXP, Fortune 500) received $3.4 billion, which the company announced in December it would eventually get. The credit card company became eligible for TARP funds after it received Federal Reserve approval to become a bank holding company on Nov. 10.
Other banks receiving more than $100 million in TARP investments were Hermitage, Penn.-based F.N.B. Corporation (FNB), Honolulu-based Central Pacific Financial Corp. (CPF), Akron, Ohio-based FirstMerit Corporation (FMER), and privately held New York Private Bank & Trust Corporation
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