Markets & Finance

Stocks Rebound


Major indexes gained more than 3% as investors sought bargains after Monday's ugly sell-off

U.S. stocks rose Tuesday following Monday's huge stock market sell-off that represented the fourth largest point decline on record for the Dow industrials. The broader market was boosted by energy shares, select financials, and General Electric Co. (GE).

Bargain hunters scooped shares that were battered in Monday's market rout, notes S&P MarketScope.

On Tuesday, the Dow Jones industrial average gained 270.00 points, or 3.31%, to 8,419.09. The broad S&P 500 index added 32.60 points, or 3.99%, to 848.81. The tech-heavy Nasdaq composite index rose 51.73 points, or 3.70%, to 1,449.80.

On the New York Stock Exchange, 24 stocks were higher in price for every 7 that fell. The ratio on the Nasdaq was 20-8 positive.

Bonds were higher. The dollar index was weaker. Gold futures were up. Oil futures were lower.

European stocks rebounded Tuesday from losses in the previous session, with major indexes gaining 1.41% in London, 2.35% in Paris, and 3.12% in Frankfurt. Asian equities finished with losses, with Tokyo stocks tumbling 6.35%, Hong Kong falling 4.98%, and Shanghai off by 0.26%.

The Big Three U.S. automakers -- General Motors (GM), Ford Motor Co. (F), and Chrysler LLC -- are scheduled to submit to Congress today their plans for remaking themselves with government money. GM, Ford and Chrysler are seeking $25 billion in government aid. Shares of GM and Ford rose Tuesday.

As part of its comprehensive business plan submitted to Congress this morning, Ford is asking for access to up to $9 billion in bridge financing, but reiterated that it hopes to complete its transformation without accessing the loan should Congress agree to make the funds available. Despite the serious global economic downturn, Ford said it does not anticipate a liquidity crisis in 2009 - barring a bankruptcy by one of its domestic competitors or a more severe economic downturn that would further cripple automotive sales and create additional cash challenges.

Automakers also issued dismal November vehicle sales reports. Ford reported a sales drop of 31% from a year earlier.

"That figure was actually a bit better than we feared, although it still supports no improvement from the paltry 10.5 million unit sales rate in October, which was the weakest since March of 1983," wrote Action Economics.

General Electric shares rose after it said Tuesday that its fourth-quarter earnings per share were trending toward 50 cents-52 cents, the low end of its previous view of 50 cents-65 cents. The conglomerate said it is evaluating restructuring and other charges and is reviewing losses in the current credit environment. GE expects a $1 billion-$1.4 billion after tax charge.

Additionally, the company said it is reorganizing GE Capital; for 2009, it its targeting a reduction in leverage to 6:1, lowering its outstanding commercial paper balance to $50 billion and reducing its overall funding needs.

Moody's Investors Service affirmed its Aaa long-term and Prime-1 short-term rating of GE and GE Capital.

Goldman Sachs Group (GS), known for avoiding many of the blowups that have battered its Wall Street rivals, now is likely to report a net loss of as much as $2 billion for its quarter ended Nov. 28, according to industry insiders cited in a Wall Street Journal report. The loss, equal to about $5 a share, would be more than five times as steep as the current analyst consensus for the Wall Street firm, as it faces write-downs on everything from private equity to commercial real estate.

The Fed announced an extension of its liquidity facilities through April 30, 2009. These facilities include the PDCF, the AMLF, and the TSLF. These were set to end on Jan. 30, 2009. The extension through April is consistent with the terms of other liquidity related facilities.

U.S. Treasury Secretary Henry Paulson said in a speech before the World Affairs Council of Washington Tuesday that China has stood by U.S. debt and has been very responsible in doing so. He then segued to the U.S. automakers, noting that bankruptcy should be avoided given the state of the economy, since we are far from through the current economic situation.

Philadelphia Federal Reserve Bank President Charles Plosser said Tuesday price instability, be it inflation or deflation, is a source of financial instability and an inflation target would be valuable in either case. That said, he doesn't expect deflation to be a serious threat following energy price drops, though he does see economic growth as slack over the next few quarters.

Bond-market guru Bill Gross of PIMCO issued his December investment outlook Tuesday. He favored investing in corporate debt over stocks for the long haul, notes Action Economics. "[S]tocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past, not our future," wrote Gross.

"Dow 5,000? We don't have to go there if current domestic and global policies are focused on asset price support and eventual recapitalization of lending institutions. But 14,000 is a stretch as well," he wrote.

In other U.S. markets Tuesday, Treasuries traded higher in the afternoon amid ongoing speculation that the Federal Reserve will purchase long-dated Treasuries in order to provide liquidity. The 10-year note was up 15/32 at 109-12/32 for a yield of 2.67%, while the 30-year bond was up 13/32 at 125-05/32 for a yield of 3.18%.

The November ADP Employment Survey tomorrow morning could provide some hints into the November jobs report on Friday, although the two reports often show very different pictures of the labor market.

The U.S. dollar index was lower at 86.70.

January West Texas Intermediate crude oil futures reversed lower to $47.82 per barrel, down $1.46 on the session, holding near their worst level in three years. Crude is under pressure on speculation OPEC may fail to fully comply with recently-announced production cuts, reports Bloomberg, as United Arab Emirates' state-owned producers said it would provide full contractual volumes to Asian refiners.

After Monday's plunge of more than $41, February gold futures reversed early losses as bargain hunters resurfaced. Gold was up $3.70 to $780.50, bouncing off a session low of $761.80, amid a weakening of the dollar vs. the euro on speculation that the U.S. Treasury will buy bank stakes, with $150 billion mooted as a potential figure across 52 banks, according to Action Economics.

Among Tuesday's other stocks in the news, Sears Holdings (SHLD) posted a third-quarter loss per share of $1.16, vs. EPS of 3 cents one year earlier, on 9.0% lower domestic same-store sales and 7.8% lower total sales. Sears posted a third quarter loss of 90 cents per share excluding items; Wall Street was looking for a loss of 49 cents. Sears says current-quarter results include a charge of $101 million ($61 million after tax or 49 cents per share) related to costs associated with the closure of 14 stores and asset impairments, of which $76 million ($46 million after tax or 37 cents per share) relates to non-cash items. The company raised its stock buyback by $500 million.

Shanda Interactive Entertainment (SNDA) posted third-quarter non-GAAP earnings per American Depositary Share of 4.78 Chinese yuan, vs. 3.46 yuan one year earlier, on a 43% revenue rise.

Palm Inc. (PALM) sees second-quarter of $190 million-$195 million, down from the fiscal 2009 first quarter and the comparable quarter in fiscal 2008 due to reduced demand for maturing smartphone and handheld products. Palm sees second-quarter restructuring charges of $7 million-$9 million. It sees second-quarter gross margin as a percent of revenue of 18%-19%, after accounting for the impact of a charge for inventory component purchase commitments of $10 million-$15 million. Merrill Lynch reportedly downgraded the shares to neutral from buy.

Mosaic Co. (MOS) says phosphate sales volumes for its second quarter were about 1.3 million tonnes, or about 800,000 tonnes lower than the first quarter. The company sees an impact on phosphate gross margins due to the high-cost raw materials used to produce phosphates in the second-quarter. The company says third-quarter sales volumes are expected to remain soft followed by a strong recovery in the fourth quarter. It also expects to record an operating loss for the second quarter in its Offshore business segment due to inventory valuation adjustments. Mosaic withdrew its fiscal 2009 sales volume guidance for phosphates and potash.

Allos Therapeutics (ALTH) says the FDA granted orphan drug designation to its novel antifolate, pralatrexate (PDX), for the treatment of patients with follicular lymphoma.

The Reserve Bank of Australia (RBA) cut its benchmark interest rate by a further 100 basis points to 4.25% on Tuesday, citing recent data indicating a "significant moderation in demand and activity" in the nation's economy.

The Chinese yuan hit the bottom of the trading band for the second day in a row, reports Action Economics, which will fuel further expectations that officials will allow the yuan to weaken in order to counter the current slowdown in China, and may also fuel speculation that the slowdown is worse than expected. The weakness in the CNY and the increased risk aversion on the back of the latest global stock market slump has also seen pressure emerge on Asian currencies, prompting government intervention to prop up the Indian, KOrean, and Phillipine currencies.


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