Tuesday 24 February 2009

New Crisis Lows for Dow, S&P 500

Selling. It’s not just for the financial sector anymore.

1 comment:

Guanyu said...

New Crisis Lows for Dow, S&P 500

By PETER A. MCKAY, GEOFFREY ROGOW and ANNELENA LOBB
23 February 2009

Selling. It’s not just for the financial sector anymore.

Technology and other economically sensitive categories led a steep drop in stocks that left major averages at their lowest closing levels in more than 11 years on Monday.

“So many people had thought you were at the spot where it didn’t make sense to sell anymore, and that doesn’t seem to be the case,” said Gordon Charlop, managing director at Rosenblatt Securities. “It seems to be the opposite, that there is no attractive level to jump in.”

The Dow Jones Industrial Average ended down 250.89 points, or 3.4%, at 7114.78, its lowest close since May 7, 1997. The blue-chip measure briefly rallied at the opening bell on reports that component Citigroup was in talks with the government to take on an increased share of the ailing bank’s equity.

But stocks slumped and never looked back as investors fretted that companies that don’t get such aid could remain in jeopardy, while those that do are likely to see the government take preference over other shareholders for dividend and debt payments.

Twenty-seven of the Dow’s 30 stocks ended in the red. The exceptions were Citi, which rose 9.7% to $2.14 a share, and Bank of America, another target of frequent nationalization speculation that managed a 3.2% gain to end at $3.91. General Motors shares ended flat.

The Treasury Department and regulators including the Federal Reserve and the Federal Deposit Insurance Co. said jointly on Monday that they stand firmly behind the banking system and are ready to aid “systemically-important” firms. “The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth,” the statement said.

But money manager David Kotok warned clients in a note that, in the wake of the implementation of the Troubled Asset Relief Program and other measures, nationalization was already Washington’s de facto policy. Mr. Kotok said that his firm, Cumberland Advisors, has raised tried to minimize its exposure to the financials. “If we could, I’d have none of the financials,” he said.

Technology giants Intel, International Business Machines and Hewlett-Packard all fell. General Electric slid 5.6%, taking the shares below $9, after an analyst raised concerns about its GE Capital business. Alcoa declined 7.6% as shares of commodities firms fell on concerns about withering demand.

“No one is getting a long leash from investors anymore in terms of tolerating any sort of risk in this market,” said portfolio manager Uri Landesman of ING Investment Management in New York. “If you have any good news to announce, you better come out with it.” He added: “Even with it widely known that that’s the psychology out there, no one is putting out any good news.”

The S&P 500 dropped 26.72 points, or 3.5%, to 743.33, its lowest close since April 11, 1997. All of its sectors swooned, paced by a 6.1% decline in its basic-materials sector. The energy sector fell 4.7% and the technology sector dropped 4.6%. The financials, which were the best-performing market through much of the session, ended trading down 3.5%.

The market’s recent break through long-term troughs has many Wall Street forecasters revising their full-year forecasts for the index. S&P’s own chief technical analyst last week lowered his forecast for a market bottom this year from around 750 to between 625 and 675.

Keith Bliss, senior vice president, Cuttone & Co., said that there is talk of an even worse scenario. Some investors say that the S&P could fall somewhere between 500 and 600 based on recent trends in earnings and the market’s performance in past recessions.

“That is not inconceivable, particularly when you see it sell off 3% every day,” said Mr. Bliss. “We’re just not in an environment where people feel good about stepping in just to lose money again.”

The technology-focused Nasdaq Composite Index, which had held up relatively well compared to other stock measures with more financial-sector exposure, suffered the biggest percentage drop of the major indexes Monday. It was off 53.51 points, or 3.7% to end at 1387.72.

A report from Morgan Stanley with a gloomy prognosis for the PC industry helped to sour investors’ disposition toward the tech sector. Netbooks -- new lower-priced laptops -- are “exacerbating the cyclical downturn in the global PC market,” wrote analyst Kathryn Huberty. “The problem is that this product will cannibalize the core notebook market at a rate of 10% to 20% and place considerable downward pressure on pricing.”

Morgan Stanley expects a 24% drop in global PC market revenue in 2009, driven by an 11% unit decline, which would be the largest on record. Pricing pressure from netbooks will make it more difficult to grow revenues in the medium term, even after any macroeconomic recovery takes hold, the report said.

I think people are anticipating that capital expenditures will be lower this year,” a trend that would likely cut into spending on computers and other equipment, said Kim Caughey, senior investment analyst Fort Pitt Capital Group in Pittsburgh. “I think that looks like a good bet.”

The Philadelphia Stock Exchange’s Semiconductor Index, which tracks makers of computer chips that are the basic building blocks of many electronic devices, ended down 4.1%.

The market’s extreme volatility meanwhile has many investors staying on the sidelines. The Chicago Board Options Exchange Volatility Index gained more than 6% in trading Monday, climbing above 52.

“This isn’t an investing market anymore, it’s a trading market,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners. “The volatility is going to continue to be there and the lack of liquidity is going to continue to be there, and it’s exaggerating these swings. Everyone’s still waiting for more news out of D.C. and when we do get it we’re not happy with it.”