After The Close - It was another volatile day on Wall Street, with weakness in the morning hours giving way to a rash of buying in the afternoon, primarily during the last 60 minutes of trading. By the closing bell, the major U.S. equity indexes, including the Dow Jones Industrial Average, the S&P 500 Index, and the tech-heavy NASDAQ Composite had moved into positive territory, with the Index of 30 bellwether companies finishing the session above the 12,000 mark. Unlike most trading sessions of late, the U.S. equity indexes did not appear to be influenced by what took place on the other side of the Atlantic earlier in the day—nearly all of the major European bourses finished the day modestly in the red, but here, too, there had been a comeback from early in the session. The uncertainty surrounding the financial crisis in the euro zone continues to dominate the newswires and influence the behavior of investors on both these shores and overseas on what seems like a minute-to-minute basis these days.
Indeed, the volatility in the market continues to be driven by the sovereign-debt crisis in the euro zone. The latest report is that Greece’s Prime Minister George Papandreou is expected to resign, which many believe will allow rival Greek political parties to agree on the necessary austerity measures needed to help the debt-saddled country secure a euro 130 billion ($179 billion) rescue package. Papandreou reached out to EU leaders and German Chancellor Angela Merkel, who were reacting reticently to Greece’s latest political drama. At the same time, concerns about Italy’s debt problems have grown, with the yields on the government’s fixed-income securities rising to their highest rates today since the country adopted the euro. The situation has gotten so dire that pressure is mounting for Italy’s Prime Minister Silvio Berlusconi to resign. Our sense is that until some concrete plans are put in place to help these struggling nations with their debt problems, volatility in the global equity markets will persist, perhaps at very elevated levels.
Notwithstanding the late buying on Wall Street, traders still appear to be wary about committing heavily to equities right now. If anything, many investors continue to exhibit a “flight-to-safety” strategy, with both gold and fixed-income securities once again in demand today. The price of the precious metal was up sharply, finishing just shy of the $1,800-an-ounce mark on the New York Mercantile Exchange, while the yield on the benchmark 10-year Treasury note, which moves in the opposite direction to the price, dropped six basis points, to end the session at 1.99%.
The lack of any major economic and earnings news on these shores allowed investors to focus more on the European debt problems. Still, we did get some earnings news. Shares of OmniVision Technologies (OVTI) fell sharply after the camera sensor maker warned that it will miss analysts’ revenue estimates in the recently ended fiscal second quarter, while the stock of Tesco (TESO) declined after the designer of technology-based solutions for the energy industry reported weaker-than-expected quarterly results. The stock of Diamond Foods (DMND) also remained under pressure as concerns about the delay in the company’s acquisition of the Pringles business from Procter & Gamble (PG - Free Procter & Gamble Stock Report) continue to mount. On the bright side was news that United Parcel Service (UPS) plans to hire 55,000 seasonal workers during the holiday shipping season, up from 50,000 a year ago, due to "solid" shopping activity and an increase in global volume. Holiday deliveries are a closely watched indicator of overall economic health and customer sentiment. Save for reports on the trade gap and initial weekly unemployment claims due this Thursday, we will receive very little data on the U.S. economy this week.
The late statement by the bulls did push most of the major sectors into the black by the closing bell. Leading the late charge were energy and basic materials stocks. Within those two groups, the integrated oil and gas sectors and the precious metals areas showed the most strength. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:30 PM ET - The U.S. stock market attempted to push higher this morning, but has since retreated modestly. At roughly noon in New York, the major indexes are stuck in negative territory. The Dow Jones Industrial Average is down about 87 points (-0.7%) and the S&P 500 Index is lower by 11 points (-0.9%). Losses are more severe on the NASDAQ, which is now off roughly 32 points (-1.2%). The selling appears quite broad based, as declining issues are outpacing advancer on both the NYSE and the NASDAQ. Moreover, all of the market sectors are showing weakness today, which is not a good sign for the bulls. There are declines in the technology stocks. Notably, shares are lower for Omnivision (OVTI), Electronic Arts (ERTS), Alcatel Lucent (ALU), and On Semiconductor (ONNN). The conglomerates are lower too, owing to losses in Textron (TXT), Siemens (SI), and General Electric (GE - Free General Electric Stock Report). Elsewhere, the financial names are not doing well, as international banks, such as UBS (UBS), are weak. There are also losses in financial services names, such as SLM (SLM) and Legg Mason (LM).
Technically, the market has been able to keep from slipping back into the August-September trading range that it recently broke out of. Notably, volumes have been decent on recent up days, which is a good sign. The Volatility Index (VIX) is now at about 32, which is still relatively high. This likely suggests that many traders remain apprehensive, and that the market is not severely overbought. Specifically, technicians look for the VIX to read lower than 25, as a signal of overly complacent sentiment.
The weak performance in the U.S. markets today, is likely due to concerns about the situation in Europe. Recently, the Premier of Greece announced that he will step down. A new government is being formed. On the bright side, it seems that Greece will be moving ahead with austerity measures and receiving some financial aid. Further, there are now concerns that Italy’s political leadership may be ready for a shakeup. Italy is also a nation in financial trouble and the prices in the debt markets there suggest deeper problems. The session on the Continent started off weak today, but the markets were able to pare their losses. The German DAX, the French CAC-40, and Britain’s FTSE-100 are set to close with only minimal losses.
It is a light day for economic reports in the U.S. Many companies have already reported earnings. Nonetheless, we did hear from Sysco (SYY), which beat analyst expectations. Also, Cracker Barrel (CBRL) announced positive guidance, sending that stock higher. There was some small acquisition news, as Force Protection (FRPT) agreed to be acquired by General Dynamics (GD). -Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - It has been mostly about Europe in recent weeks, and it continues to be mostly about Europe. Consequently, rather than the United States leading the world markets on a day-to-day basis, it has been Europe, or more specifically, the battered euro zone that has set the pace. This can almost always be seen in the behavior of the equity futures along our shores in the hours before the new day starts on Wall Street and then during the opening few hours of trading.
Thus, following last week's fireworks that saw massive declines in our markets on Monday and Tuesday, sharp comeback rallies on Wednesday and Thursday, and a listless, albeit still moderately negative, performance on Friday, the European bourses are all registering negative trends this morning. So, not surprisingly, our futures are pointing to an opening loss of some seven points in the Standard and Poor's 500 Index and 10 points in the NASDAQ, when trading commences in less than an hour from now. Encouragingly, though, they have pared their deficits somewhat over the past three hours.
Specifically, this morning, following the turmoil and upheavals in Greece, where the latest twist and turn in that unending soap opera, is that after calling off his initially intended referendum on the rescue package for his country, Greece's Prime Minister George Papandreou has prepared to step down as a prelude to making way for a new, hopefully bipartisan government to replace it. He hopes that move will lead to some success in getting this embattled nation to accept the major austerity measures needed to carry out Europe's mandates.
Unfortunately, this morning, it seems to be more than just Greece that is in play, but also Italy. There, in fact, political turmoil has sparked worry that the euro-zone debt crisis could consume the region's third largest economy (after Germany and France). As part of this latest problem, benchmark Italian government bonds have spiked to their highest yields since 1997. A vote on public finance measures is scheduled to be held there later this week. One only imagines what that vote will usher in for this troubled nation. A threat to bring down the government of Italy's Prime Minster Silvio Berlusconi is in the air.
As noted, it has been mostly about Europe during the past few weeks. However, with a heavy economic calendar at home featuring data, in just the last week, on the key manufacturing and non-manufacturing sectors, and Friday's report on employment and unemployment, there has been plenty else to occupy Wall Street's days. Add into that fragile mix, the unrelenting stream of third-quarter earnings reports, and there have been other influences on trading over here as well. Now, a light economic calendar faces the nation in the week ahead, with just the weekly jobless claims data and the monthly trade balance figures (on Thursday), and Friday's consumer sentiment report from the University of Michigan on the docket, there should be less written and analyzed on the economy stateside this week. Also, third-quarter earnings season is now quickly winding down, so there will be less of that potential diversion.
As a result, the focus should be even more fully on Europe than it has been, if that is possible, in the days to come. And with government uncertainty, along with all the financial and economic headaches in Greece and now Italy to contend with, that should add to the high level of volatility in the markets.
Thus, after a presumptive decline of moderate proportions to start the week in our markets, we could face even more volatility in the days to come. So fasten your seatbelts for what we believe will be a frenetic ride in the days to come. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.