After The Close - The final day of the second to last trading week of 2012 was a big win for the bears, although not as big a victory as seemed likely in the morning. Specifically, the major U.S. equity indexes were off sharply at the start of trading and held a good portion of the earlier losses into the afternoon, before paring the deficit by the close. For the session, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were down 121, 29, and 14 points respectively. Earlier, the Dow had been off by close to 180 points. Declining issues outdistanced advancers by a wide margin on both the Big Board and the NASDAQ.
The selling was broadbased, with each of the 10 major sectors in negative territory. The biggest laggards were the technology, basic materials, consumer cyclical, and energy stocks. In the technology space, industry heavyweights Apple (AAPL) and Google (GOOG) were modestly weaker, while shares of struggling smartphone maker Research in Motion (RIMM) fell sharply after the company released its latest quarterly results after yesterday’s market close. Meantime, weak showings from Herbalife (HLF) and Nu Skin Enterprises (NUS) weighed on the consumer noncyclical sector, where there were very few positive performers of note. Falling oil prices on the New York Mercantile Exchange restrained on the energy issues.
The primary catalyst behind today’s notable selloff was growing concerns that the two political parties in Washington will not reach an agreement to avoid the automatic tax increases and spending cuts from taking effect on January 2, 2013. Congress adjourning for the upcoming Christmas holiday will not help matters either, though House Speaker John Boehner noted that Congressional leaders could come back to work over the Christmas break if needed. Mr. Boehner, who dropped his alternative tax plan because of a lack of support among fellow Republicans, said today he remains willing to work with President Barack Obama to avoid the "fiscal cliff". Still, with 2012 nearing a conclusion, the chance of an accord being struck is growing bleaker by the minute, which may bode ill for equities in the final five trading sessions of 2012.
The skittishness among investors fearful of the nation possibly going over the proverbial “fiscal cliff” in January prompted some “flight to safety” today. Investors gobbled up both the precious metals and bonds in the latest session. Gold and silver were in demand, while the yield on the benchmark 10-year Treasury note, which moves in the opposite direction to the price, fell five basis points. The defensive-minded utilities also staged a notable rally off their lows as trading drew to a conclusion.
Meantime, the day’s economic news, which included reports on personal income and spending and durable goods orders, was semi-encouraging. Both durable goods orders and personal income rose in November, besting expectations. However, both readings did highlight the public’s growing concern about Washington’s inability to reach a budget agreement. What we can take away from the reports is that individuals are saving more and businesses are spending less. Neither scenario is ideal for economic growth, which is still moving forward at an uneven pace.
Looking ahead, next week will be light on both economic and earnings news, which is the norm in the days between the Christmas and New Year’s holidays. We do get two important economic reports next Thursday when data on consumer confidence and new home sales are released. On the earnings front, the only notable reporter is Cal-Maine Foods (CALM) on Monday. The markets will be closed on Tuesday in observance of Christmas Day. - William G. Ferguson
12:30 PM EST - The U.S. stock market is faltering badly today. As we pass the noon hour in New York, the Dow Jones Industrial Average is off about 165 points (-1.2%); the S&P 500 Index is lower by 19 points ( -1.3%); and the tech-heavy NASDAQ is shedding 43 points (-1.4%). Market breadth is decidedly negative, as declining stocks are ahead of advancers by a margin of nearly 3 to 1 on the NYSE. All of the market sectors are in negative territory, led lower by the technology, financial, and energy issues. Meanwhile, there is some relative strength in the transports and utility issues, as these stocks are down less than the other sectors.
Technically, the S&P 500 Index continues the pullback that started a couple of days ago. A pause, or even some profit taking here is not unexpected, given that the market has had a good run. Traders have turned a bit more apprehensive today, as the VIX is up over 9% to a reading of more than 19.
Traders following developments in Washington are now concerned that the politicians will not be able to agree on a new budget in a timely fashion. These concerns are largely overshadowing today’s economic news, which contained a few constructive items. According to the Commerce Department, personal income rose 0.6% in November, which was better than many had expected, and also higher than last month’s figure. Furthermore, much of that increase is making its way back into the economy, as personal spending levels also picked up during the month of November. In addition, durable goods orders rose 0.7% last month, which was quite a bit better than the consensus view. However, not all the news was positive. The University of Michigan’s Consumer Sentiment Survey came in with a final figure for December of 72.9, which was a bit lower than the initial reading.
In corporate news, shares of Research in Motion (RIMM) are trading sharply lower after the Blackberry device maker posted its quarterly results. Also in the technology area, Red Hat (RHT) stock is up after the company reported a strong top-line figure and announced an acquisition. In footware, shares Nike (NKE) are higher on better-than-anticipated results.
Stocks advancing today include: TIBCO Software (TIBX), Mohawk Industries (MHK), and Pinnacle Entertainment (PNK). Issues headed lower include: Walgreen (WAG) and Herbalife (HLF). - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
11:45 PM EST - The stock market opened sharply lower this morning, with the Dow Jones Industrial Average falling back by some 150 points in early trading. It then proceeded to pare those losses, with the Dow just about halving its deficit within the first hour, or so, of trading. However, after that half-hearted rally attempt failed, stocks began falling again, and now, as we approach the midday hour along the East Coast, the averages are back near their session lows.
All told, at this time, the Dow is off 177 points; the Standard and Poor's 500 Index is lower by 20 points; and the NASDAQ is in the red by 44 points.
Behind the sharp retreat, which follows solid gains in three of the first four sessions this week, is the decision by House Speaker John Boehner to pull his so-called Plan B budget proposal before it could come up for a vote in the Lower Chamber. Mr. Boehner feared that his own party would not have mustered the votes needed for passage.
The Speaker has since intoned that he was not walking away from the debate with President Obama, but the fact remains that the two sides are still very far away from reaching a deal, and the time is drawing near when the automatic tax increases and spending cuts, which could trigger an economic slowdown, or worse, would be set off.
We note that today's session is very volatile, and with many traders breaking early for the upcoming holiday next week, price swings can be material. Thus far today, this volatility is clearly to the downside. - Harvey S. Katz, CFA
Stocks to Watch from The Survey – There are a number of stocks that could see active trading today because of earnings news. At the forefront is BlackBerry maker Research in Motion (RIMM), which released November-period results after the market closed yesterday. Investors initially cheered the better-than-expected financials, but market sentiment quickly soured after the conference call revealed that management is planning to change the company’s service revenue model. Details were thin, but investors were clearly concerned about anything disrupting this cash cow, and the stock is trading sharply lower in the premarket as a result. Wall Street was not pleased with quarterly results from drug store operator Walgreen Co. (WAG) or semiconductor company Micron Technology (MU) either, and those stocks are indicating slightly lower openings this morning. On the bright side, shares of athletic apparel and footwear giant Nike (NKE) and software company Red Hat (RHT) are trading higher ahead of the bell on earnings news. Elsewhere, shares of Pinnacle Entertainment (PNK) are trading nicely higher in the premarket, after the casino operator agreed to buy industry peer Ameristar Casinos for $26.50 a share, a 20% premium to the stock’s preannouncement closing price. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market rallied into the close yesterday, transforming what had been an up-and-down session into a solid advance for the day. All told, the Dow Jones Industrial Average, buoyed by the late run, gained 60 points; the Standard and Poor's 500 Index climbed eight points; and the NASDAQ, pressured by some weakness in a group of technology stocks, added just six points. However, gainers on the Big Board surged past losing issues by a ratio of better than two-to-one, while gainers led decliners on the NASDAQ by about three-to-two. In all, it was a satisfying day for those long the market, and the third nifty advance in four sessions this week.
Boosting the market late in the day was optimism that an expected affirmative vote on the Republican's so-called Plan B legislation to address the looming fiscal cliff would at least signal that the two sides were getting nominally closer to a final deal. However, that optimism was soon dashed as House Speaker John Boehner, who had championed the Plan B proposal, which would, among other things, have raised taxes just on those making over $1 million a year, was unable to bring along a majority in his own party, and withdrew the plan before it could be put up for a vote. The equity futures sold off immediately on the news, falling sharply last night.
The failure to get the Speaker's own party to go along with him sent chills through the global equity markets, and immediately sent the bourses in Asia--then open for trading--down precipitously. By the close of trading, for example, Japan's Nikkei was down a full percentage point. And similar losses are now being seen in the London FTSE 100, The Paris CAC-40, and the Frankfurt DAX. And on our shores, the Standard and Poor's 500 Index futures are now in the red by some 21 points, while the NASDAQ futures are plunging by more than 43 points, presaging a notably lower start to the trading day when the market opens in less than an hour from now. At this time, there seems little if any chance that a deal will get brokered by Christmas, although we still think an accord is possible by the deadline of January 2nd. However, it is getting more and more likely, we sense, that we will go into the first part of the new year before such an agreement is finally struck.
Meanwhile, there is other news, although our feeling is that such tidings, which yesterday included higher figures for third-quarter GDP growth, which was revised upward from 2.7% to 3.1%, and a solid reading on sales of existing homes, are now doing little for the market. Clearly, the focus is entirely on Washington.
In fact, this morning, we have already had a pair of key releases, and they were both better than forecast. Specifically, the U.S. Commerce Department reported that personal income recovered in November, climbing by 0.6%. A gain of 0.4% was the expectation. Also, the figure was notably better than the scant 0.1% gain inked in October. Moreover, in the same report, it was shown that consumer spending, which had eased by 0.1% in the wake of Hurricane Sandy, rebounded with a better-than-estimated gain of 0.4% last month. Consensus here had been for an increase of 0.3%. Also, orders for durable goods advanced by 0.7% last month; expectations had been for a nominal gain of 0.2%. The generally good news on these fronts, along with yesterday's solid releases, are, as noted, doing little for the futures, which continue to sell off as the market's opening draws near. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.