Indexes were unable to follow through on Tuesday's Fed-inspired rally
U.S. stocks closed lower Wednesday as profit taking
halted a rally that began Tuesday with the Federal Reserve's record interest rate cut.
Traders were positioning their portfolios for Quadruple Witching expiration of options and futures on Thursday and Friday, which may also have contributed to the market's late-session retreat, says S&P MarketScope.
Shares of Morgan Stanley (MS) closed slightly higher despite the firm's wider than expected fourth-quarter loss. Apple Inc. (AAPL) shares were down sharply amid renewed speculation about the health of CEO Steve Jobs.
Bonds rallied for a second day on the Fed's rate cut and other stimulus plans, while the dollar index lost further ground. Gold futures spiked
on the weaker dollar. Oil futures fell as U.S. inventories rose.
On Wednesday, the 30-stock Dow Jones industrial average finished lower by 99.80 points, or 1.12%, at 8,824.34. The broad S&P 500 index shed 8.76 points, or 0.96%, to 904.42. The tech-heavy Nasdaq composite index fell 10.58 points, or 0.67%, to 1,593.33.
"[T]he bulls may need a breather in order to recharge for the next advance to higher price levels," says S&P technical analyst Chris Burba.
European equities closed mixed Wednesday, with London stocks higher by 0.35%, while Frankfurt was down 0.46% and Paris fell 0.30%. Asian markets finished higher, with Tokyo stocks up 0.52%, Hong Kong higher by 2.18%, and Shanghai edging up 0.09%.
The Fed went deep on Tuesday, cutting the benchmark U.S. federal funds rate by three-quarters of a point, more than the half-point reduction that economists had expected. The new target range for the fed funds rate is 0% to 0.25%, the lowest level on record.
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," the Federal Open Market Committee (FOMC) said in a statement, adding it expects "exceptionally low levels for the federal funds rate for some time."
In further efforts to ease the credit crisis, the Fed committee also said it "stands ready" to expand purchases of debt and mortgage-backed securities, and may even buy longer-term Treasury securities.
Morgan Stanley economist David Greenlaw wrote in a note Wednesday that he continues to believe the economic climate in the U.S. will deteriorate for the next few quarters, but added that "aggressive monetary and fiscal stimulus, together with the recapitalization of the financial system and the implementation of bank liability guarantees, are the right policy medicine and these actions should eventually help to stabilize the financial system and lead to a bottoming out of economic activity."
GMAC, the financing arm of General Motors (GM), is having trouble raising the targeted $30 billion capital that is needed to become a bank holding company and thus allow it to tap TARP funding, according to a CNBC report cited by Action Economics. Bank status would also GMAC to borrow directly from the Fed. The firm is looking to swap some $38 billion in current notes for preferred stock and cash, and had reportedly raised $20 billion as of late Tuesday. The deadline for investors to tender their notes has been pushed back twice already, and is currently set at Friday at 5:00 p.m. ET. Chrysler Financing is also warning it may have to stop dealer loans, according to CNBC.
The Wall Street Journal Online reports a bail hearing in Manhattan for Bernard Madoff was canceled after the money manager agreed to terms requested by the government, including home detention in his Manhattan apartment and a curfew of 7 p.m. to 9 a.m. Madoff, arrested last week on fraud charges for allegedly running a giant Ponzi scheme, will also be required to wear an electronically monitored ankle bracelet. His wife will surrender her passport and pledged properties she owns in Manhattan, Montauk, N.Y., and Palm Beach, Fla., to help secure the $10 million bond.
In economic news Wednesday, the U.S. current account deficit narrowed to $174.1 billion in the third quarter after widening to a $180.9 billion deficit in the second (revised from -$183.1 billion previously). The balance on goods and services narrowed to a $176.5 billion deficit from a revised -$180.1 billion (-$180.6 billion previously).
Recessionary signals were evident elsewhere in the world economy. A report issued Wednesday showed the number of Britons out of work and claiming benefit rose 75,700 to 1.072 million in November, the largest increase in 17 years and the first time above 1 million since 2001. Meanwhile, minutes of the Dec. 3-4 Bank of England policy meeting showed all nine members voted for this month's 1 percentage point cut in interest rates and discussed whether an even bigger reduction might be needed.
Eurozone consumer prices fell 0.5% month-on-month for a 2.1% year-on-year rise, the European Union's statistics office said.
Japanese Finance Minister Shoichi Nakagawa said on Wednesday he was not considering intervention in currency markets for now, the Nikkei newspaper reported. Nakagawa also said the latest moves in currencies are not too sharp and that the yen's recent gains was not bad, the Nikkei reported.
Among companies in the news Wednesday, Apple Inc. AAPL says this year is the last year the company will exhibit at Macworld Expo, and that Philip Schiller, Apple's senior vice president of Worldwide Product Marketing, will deliver the opening keynote for this year's conference instead of CEO Steve Jobs.
"We believe that Apple's decision to scale back on trade show appearances is understandable, given its extensive customer reach and brand awareness. But we think that Jobs' absence adds to concerns regarding his health and future leadership of the company," wrote S&P equity analysts on Wednesday. S&P maintained its strong buy opinion on the shares.
Morgan Stanley posted a fourth-quarter loss from continuing operations of $2.24, vs. a $3.61 loss one year earlier, on net revenues of $1.8 billion, compared with negative $0.4 billion in last year's fourth quarter. Wall Street was looking for a fourth-quarter loss of 34 cents. The company noted that its Asset Management business experienced a pre-tax loss of $1.8 billion, driven primarily by markdowns in principal investments and lower assets under management. Moody's cut Morgan Stanley's long-term senior debt ratings.
Adobe Systems (ADBE) posted fourth-quarter GAAP earnings per share of 46 cents, vs. 38 cents one year earlier, on a slight revenue rise. The company reported non-GAAP EPS of 60 cents, vs. Wall Street's view of 58 cents. Adobe sees first-quarter GAAP EPS of 30 cents-35 cents on revenue of $800 million-$850 million.
General Mills (GIS) posted second-quarter EPS of $1.09, vs. $1.14 one year earlier, on an 8.3% sales rise. The company notes that second-quarter fiscal 2009 results included a 49 cents net reduction related to mark-to-market valuation and a 22-cent gain from the sale of Pop Secret. Reaffirms '09 input cost inflation estimate of 9%, says forex translation now expected to reduce FY 09 reported sales, EPS for the year. Despite this, raises $3.81-$3.85 FY 09 EPS guidance to $3.83-$3.87 before any impact from mark-to-market valuation and excluding the Pop Secret gain.
Liz Claiborne Inc. (LIZ) suspended its quarterly cash dividend indefinitely. The company has paid the dividend scheduled for December 15, 2008 in the amount of 5.625 cents per share to stockholders of record at the close of business on November 21, 2008.
CIT Group (CIT) says it has commenced a $250 million public offering of common stock. The company notes the offering is the final element of the regulatory capital plan that CIT presented to the Board of Governors of the Federal Reserve in connection with its application to become a bank holding company.
Gibraltar Industries (ROCK) says it does not expect to meet its 2008 EPS guidance due to unexpected and precipitous deterioration in business conditions in November. The company also announced the closing of its Enterprise, Miss., facility and consolidation of its manufacturing operations into two other existing facilities, with no expected impact on sales.
Satyam Computer Services (SAY) announced that it is not going ahead with its proposed acquisition of Maytas Properties and Maytas Infra, in light of the feedback received from the investor community. The shares plunged Tuesday after the company announced that its board approved proposals to acquire a 100% stake in Maytas Properties and a 51% stake in Maytas Infra. Total outflow for both acquisitions was expected to be $1.6 billion, comprising of $1.3 billion for a stake in Maytas Properties and $300 million for stake in Maytas Infra.