Friday, September 25, 2009

Three-peat: Stocks fall again

Stocks fell for the third straight session on Friday, ending lower for the week, after weaker-than-expected reports on durable goods orders and new home sales sparked concerns about the strength of any recovery.

The Dow Jones industrial average (INDU) lost 42 points, or 0.4%. The S&P 500 (SPX) index lost 6 points, or 0.6%. The Nasdaq composite (COMP) fell 17 points, or 0.8%.

Stocks slid in the previous two sessions after having ended Tuesday at one-year highs. Investors reacted negatively to Wednesday's Federal Reserve meeting and Thursday's weaker existing home sales report and oil slump.

The mix of economic news Friday gave investors another reason to retreat after the recent advance. An attempt at stabilizing in the last hour of trading gave out near the close.

"Today is the third day that we are seeing selling on higher volume," said Curtis Lyman, managing director at HighTower Advisors. "It's indicative that the market is consolidating after the very nice recovery we've seen."

Stocks have seen a huge spike over the last 6-1/2 months. Since bottoming at a 12-year low March 9, the S&P 500 has gained 54.4% and the Dow has gained 47.6%, as of Friday's close. After hitting a six-year low, the Nasdaq has gained 64.8%.

This week's retreat has left Wall Street at what could be a key inflection point, said Brian Peardon, wealth advisor at Harrison Financial Group

"We could see a new push higher or a much more substantial selloff," Peardon said. "It's just a matter of all the cash on the sidelines and whether the (buy on the) dip buyers decide to come in."

He said that a continued move higher is more likely than a big selloff at this point, but that the upcoming quarterly earnings reporting period will be critical in terms of whether the rally gets another leg up.

Economy: New home sales rose 0.7% in August to a 429,000 unit annual rate from a 426,000 unit rate in July, according to a government report released Friday morning. It was the fifth consecutive month of rising sales.

The results were shy of the 440,000 unit annualized rate economists were expecting, according to a survey by Briefing.com.

In general, the report added to other recent indications that the housing market has likely hit bottom. The housing market collapse and subsequent subprime mortgage meltdown were seen as sending the economy into recession in the first place, so a recovery in this area is critical for broader growth.

But not all signs point to improvement. A different report Thursday from the National Association of Realtors showed August sales of previously-owned homes fell 2.7% in August from July, after jumping in the previous month.

Another report released Friday showed that consumer sentiment rose more than expected in September. The University of Michigan's index rose to 73.5 from an initial reading of 70.2. Economists thought it would rise to 70.5.

An earlier report showed a surprise drop in durable goods orders last month. Orders for big-ticket items meant to last three years or more fell 2.4% in August versus forecasts for a rise of 0.4%, the Commerce Department reported. The surprise dip was largely due to a drop in commercial aircraft orders. Orders rose a better-than-expected 4.8% in July, including the impact of the Cash for Clunkers auto stimulus program.

Stripping out autos, August orders were flat versus forecasts for a rise of 1%. Orders excluding autos had risen 0.9% in July.

"We're seeing continued choppiness in the economic numbers, which points to the fact that the recovery is still in the early stages," Lyman said.

G-20 summit: The Group of 20 leading developed and emerging countries met for a second day in Pittsburgh. The Group has been meeting to discuss the financial crisis and how to prevent something like it from happening again.

On Thursday, the leaders agreed to make the group the new permanent council for international economic cooperation, essentially eclipsing the G-8, which doesn't include developing nations such as China, India or Brazil.

The G-8 will still meet on major security issues, but will be less influential.

Company news: Research in Motion (RIMM) reported a better-than-expected profit late Thursday, and also forecast third-quarter earnings in a range that includes analysts' estimates. But the BlackBerry maker also predicted third-quarter revenue would fall in a range that is short of analysts' current estimates. Shares slumped 17%.

After the close Thursday, Hewlett-Packard (HPQ, Fortune 500) issued a fiscal 2010 revenue forecast that is short of analysts' predictions and an earnings outlook in a range that could top analysts' expectations. On a broader level, the computer and printer maker said that the IT industry will return to growth next year and that the company will outpace the rest of the market. Shares were little changed.

In deal news, Unilever (UN) is buying Sara Lee (SLE, Fortune 500)'s personal care unit for $1.88 billion, the companies said Friday.

A number of retailers declined on concerns about the economy, including Wal-Mart Stores (WMT, Fortune 500).
0:00 /1:25The recovery checklist

World markets: Global markets were mostly lower. In Europe, London's FTSE 100 ended little changed, while France's CAC 40 and Germany's DAX both declined. Asian markets ended lower, with the exception of the Japanese Nikkei.

Currency and commodities: The dollar fell versus the euro and the yen. The greenback has repeatedly hit one-year lows against a basket of currencies over the last few weeks.

The weaker dollar had little impact on dollar-traded commodities, although it often moves in the opposite direction of oil and gold prices.

U.S. light crude oil for October delivery rose 13 cents to settle at $66.02 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery fell $7.30 to settle at $998.90 an ounce. Gold closed at a record high of $1,020.20 last week.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.32% from 3.36% late Tuesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers topped winners eight to seven on volume of 1.20 billion shares. On the Nasdaq, decliners beat advancers five to four on volume of 2.39 billion shares.

Wednesday, September 9, 2009

Credit card satisfaction hits new low

Okay, so that headline packs all the shock value of “Sun Rises in the East.” But given the widespread annoyance so many readers have with their credit card issuers (check out comments to blog posts here and here) I thought it might be, well, satisfying to know card wrath is a bit of a national epidemic.

J.D. Power reports that overall customer satisfaction with credit card issuers hit a three-year low, clocking in at 703 (on a scale of 1000) in 2009. That was slightly lower than the already anemic 710 score from 2008, and is the lowest showing since the firm started looking at credit cards in 2007.

On the sub-topic of fees and rates, the 2009 satisfaction score slumped from a solid D (640 in 2008) to a D-minus (603 in 2009) as the percentage of respondents who were hit with an interest rate increase nearly doubled over the past year, to close to 20%. Customers reporting complaints/problems also shot up; from 10% in 2008 to 18% this year.

No surprise then, that J.D. Power says credit card issuers own the dubious distinction of having the lowest satisfaction score across the financial services industry, trailing investment services, insurance and banking.

cut_credit_card.ju.03Those of you who’ve reached your annoyance limit with a current card issuer might want to check out the two most satisfying card firms in this year’s survey: American Express (762) and and Discover (751).

Or you can hold on in the hope that the impending new consumer-friendly regs scheduled to go into effect in February 2010 will help matters. I’m not holding my breath. Industry analyst firm R.K. Hammer estimates that credit card issuers will pocket about $20 billion in credit card fees this year. Something tells me they will come up with new and unsatisfying ways to keep that gravy train running in 2010 and beyond.

Friday, September 4, 2009

Gold's near $1,000

Are gold investors starting to sense something wrong that others are missing?

The price of gold is nearing $1,000 an ounce. It closed at $997.70 Thursday, up $19.20 from Wednesday. This rise might be a cause for concern.

In the past two years, gold has flirted with the "box of ziti" level -- a bit of slang for $1,000 from a memorable "Sopranos" episode -- a couple of times. And that usually has coincided with a time of immense strain in the markets

Gold hit a record high of about $1,014 in March 2008, just when Bear Stearns was on the verge of collapse before being "rescued" by the Federal Reserve and JPMorgan Chase (JPM, Fortune 500).

A couple of months later, gold got close to $1000 again due to worries about inflation and a weak dollar. Gold's rise matched oil's march to a record high.

Finally, gold got close to $1000 again in late February of this year, a time when investors were fretting that big banks such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) might need to be nationalized.

So what's driving the gold rush this time around? It is hopefully something less sinister than fear of imminent financial doom.

It simply may just be traders looking to hedge their bets a bit as investors begin to worry if the stock market rally that began in March has come too far too fast.

"There hasn't been too much big news driving up gold prices. There is no major catalyst," said Kathy Lien, director of currency research at GFT, a foreign exchange and futures brokerage firm in New York. "I don't think it's a fear of instability in the financial sector. It does reflect skepticism about the strength of the global recovery."

Lien added that in light of how much money has been pumped into the financial system by the Federal Reserve in the past year, some investors may also be worrying about the dollar weakening again. That could drive up prices and cause investors to rush for tangible assets, such as gold, as a safe haven.

"It's prudent for investors in general to increase their exposure to gold given the risks of inflation in the future," Lien said.
0:00 /03:11Post Labor Day selloff looms

Still, inflation may not be that big of a worry right now. While the dollar has weakened against the euro and yen lately, investors in other assets don't appear to be fretting about pricing pressures.

Oil prices have retreated in recent days for many of the same reasons that stocks have pulled back. With investors pondering just how strong a global economic recovery will be, that leads to the inevitable question of whether oil prices really reflect true demand.

In addition, U.S. Treasury bond prices have slipped in the past few weeks, pushing their yields higher. (Bond prices and rates move in opposite directions.) The yield on the U.S. 10-year note is currently about 3.3%, down from around 3.8% just a month ago. Higher bond rates are typically a sign of more inflation concerns.

With that in mind, Stefane Marion, Chief economist and strategist National Bank Financial Group in Montreal, wrote in a report Wednesday that the spike in gold may soon fizzle.

More evidence that the economy is in fact recovering could deflate double-dip recession fears. And if the Fed drops more hints that it is getting closer to employing a so-called exit strategy for its various lending programs, investors will have less reason to worry about run-away inflation.

"The price of gold has had two major drivers lately -- the need for a haven in turbulent times and fear of a return of inflation," Marion wrote. "Fewer investors will need gold as a haven as the economy begins growing again. As for the need to hedge inflation, we do not expect the world's central bankers to lose control of inflation."

But another strategist worries that it may not be that easy for central banks to rein in inflation. Subodh Kumar, an independent market strategist with Subodh Kumar & Associates in Toronto, said that since the U.S., some European nations and Japan face such big budget deficits, they may look to buy gold as a reserve.

This means that there could be more demand for gold -- even if demand for oil and other commodities doesn't pick up. So the pattern of gold and oil rising in tandem as they did for a big stretch last year and earlier this year may be over.

"With high budget deficits and uncertainty about how to get out of them, gold is a good diversification for large central banks and sovereign wealth funds," Kumar said. "That would lead gold to move in a separate fashion than other industrial commodities."

Wednesday, September 2, 2009

Stocks struggle to rise

Stocks seesawed early Wednesday afternoon as investors weighed the morning's mixed economic news with worries that the market rally has outpaced any recovery.

In a choppy session, the Dow Jones industrial average (INDU) and the S&P 500 (SPX) index were both little changed nearly 3 hours into the session. The Nasdaq composite (COMP) inched higher.

Stocks slumped on Tuesday, with the three major gauges all losing around 2% as investors bet the six-month run has gotten ahead of the economic rebound.

Since bottoming March 9 at a 12-year low, the S&P 500 has basically been on the rise, adding 52% through Monday. Stocks saw a minor retreat in late June and early July, with the S&P 500 losing about 7% heading into the start of the second-quarter financial reporting period. But other than that small sell off, the direction has mostly been up.

Reports on Tuesday showed housing and manufacturing are recovering, but investors remain worried about the labor market and how rising joblessness will impact consumer spending. Consumer spending fuels two-thirds of economic growth, and economists say any recovery will be mild without the consumer's participation.

Jobs: Two reports on the labor market were released Wednesday morning, leading up to Friday's bigger non-farm payrolls report.

Payroll services firm ADP said employers in the private sector cut 298,000 jobs from their payrolls last month after cutting a revised 360,000 in July. Economists were expecting 250,000 job cuts according to a Briefing.com survey.

Separately, outplacement firm Challenger, Gray & Christmas reported 76,456 job cut announcements in August, 21% fewer than in July.

Although both reports indicate the pace of job cuts has slowed, the economy is still far from creating jobs.

"The reports show that the labor market is progressing toward the recovery phase ahead of schedule," said Gregory Miller, chief economists at SunTrust Banks.

He said that most economists were forecasting no improvement until the end of this year or early next year.

He said that if the pace of the recovery in the jobs market continues - and business spending picks up - the recovery could be be stronger than current forecasts. But without those two factors, growth will remain sluggish.

Other economic news: A Labor Department report showed that non-farm productivity rose at a 6.6% annual rate during the second quarter versus the initially reported 6.4% pace. That was in line with forecasts.

Factory orders rose 1.3% in July, the Commerce Department reported. Orders rose a revised 0.9% in June. Economists thought orders would rise 2.2% in July.

The minutes from the last Federal Reserve policy meeting are due at around 2 p.m. ET.

Company news: Wells Fargo (WFC, Fortune 500) is set to repay the $25 billion in bailout funds it took from the U.S. government. The bank expects to pay it back from internal funds, rather than through issuing new shares.

Financial stocks as a sector retreated for the second session in a row, although the declines were fairly modest. The KBW Bank index lost 1.7%.

Pfizer (PFE, Fortune 500) will plead guilty to a criminal charge related to how it promoted now-defunct pain killer Bextra. The Dow component will pay $2.3 billion to settle charges it wrongly marketed 13 medicines. In January, Pfizer said it took the charge but didn't specify why.

Fellow Dow component Coca-Cola (KO, Fortune 500) inched higher, while Merck (MRK, Fortune 500), Walt Disney (DIS, Fortune 500) and Home Depot (HD, Fortune 500) declined.

Diversified manufacturer Danaher (DHR, Fortune 500) said it is cutting more jobs as part of its restructuring plan -- and is buying two businesses that make scientific instruments for about $1.1 billion.

The company is buying the life sciences instrument business of Canadian MDS for $650 million in cash. That purchase includes a 50% stake in AB SCIEX, which makes instruments used by researchers. Danaher will also buy the rest of AB SCIEX for $450 million. Danaher shares gained 2%, while MCS (MDZ) shares gained 22%.

Oil: U.S. light crude oil for October delivery fell 33 cents to $67.72 a barrel on the New York Mercantile Exchange after a mixed weekly inventory report from the Energy Information Administration. Oil prices have been slipping since hitting a ten-month high just below $75 a barrel late last month.

In other energy sector news, BP (BP) said Wednesday that it has made a "giant" oil discovery in the Gulf of Mexico. Although the company doesn't yet know the volume of oil present, it is thought to be in excess of 3 billion barrels.

World markets: The global market sell off continued, with Asian shares slumping. The Japanese Nikkei lost 2.4%. In Europe, markets tumbled as well.
0:00 /3:02Bailout falls short for homeowners

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.33% from 3.36% late Tuesday. Treasury prices and yields move in opposite directions.

Other markets: COMEX gold for December delivery rose $17.90 to $974.40 an ounce.

In currency trading, the dollar fell versus the euro and the Japanese yen.

Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 620 million shares. On the Nasdaq, decliners narrowly edged advancers on volume of 960 million shares.
 

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