David Berman, today at 9:39 AM EDT
American International Group Inc.'s big first-quarter loss, coupled with stubbornly high oil prices, hammered U.S. stock market indexes early on Friday.
The Dow Jones industrial average fell 126 points in early trading, to 12,741. Citigroup Inc. was one of just two stocks that were up (the other being JPMorgan Chase & Co.), after its chief executive outlined a plan to jettison $400-billion (U.S.) in assets from the bloated financial firm.
Meanwhile, AIG fell 6.7 per cent after its $7.8-billion loss stunned investors on Thursday after markets closed. General Motors Corp., looking more and more sensitive to the price of fuel, fell 1.8 per cent, Microsoft Corp. fell 0.9 per cent and General Electric Co. fell 1 per cent.
The broader S&P 500 fell 13 points, to 1385.
Crude oil rose to a new high of $125.80 a barrel, up $2.11. Gold rose to $883.87 an ounce, up $2.02.
In Canada, the S&P/TSX composite index fared better than its U.S. counterpart given its higher exposure to commodity producers, but nonetheless fell 33 points, to 14,575. Canadian Natural Resources Ltd. rose 1.2 per cent and Aeroplan Income Fund rose 0.9 per cent, after the income trust announced that it will convert into a corporation that will pay out a quarterly dividend of 12.5 cents a quarter.
However, most of the Big Banks were down slightly and Potash Corp. of Saskatchewan Inc. fell 1 per cent.
David Berman, today at 9:33 AM EDT
If you're on the prowl for cheap stocks to buy in the hope of a quick bounce, Bespoke Investment Group has an intriguing approach: They took the S&P 1500 and looked for stocks over the past three years that have consistently risen higher a week after reaching oversold levels. They then assembled a top 10 list of stocks that are currently oversold and typically go up.
For example, Coca-Cola Co. tops the list. The stock is 2.84 standard deviations below its 50-day moving average, after the stock fell 14 per cent from its high this year. But over the past three years, the stock has risen on average 1.1 per cent in the week after reaching this oversold level. It has shown this pattern a convincing 85.7 per cent of the time.
The other stocks on the top 10 list include: MEMC Electronic Materials, Constellation Energy Group, Bard C.R. Inc., Hospira Inc., Reynolds American Inc., Colgate Palmolive, Staples Inc. and Cincinnati Financial.
David Berman, today at 8:47 AM EDT
North American stock index futures suggested that major indexes will open lower when trading begins on Friday morning. Futures for the Dow Jones industrial average fell 81 points, to 12,743, about an hour before markets open. Futures for the broader S&P 500 fell 8 points, to 1384.
In Europe, the U.K.'s FTSE 100 and Germany's DAX index fell 1.3 per cent each in afternoon trading. In Asia, Japan's Nikkei 225 fell 2.1 per cent.
Crude oil broke the $125 (U.S.) a barrel mark early on Friday in electronic trading, before settling back. That's yet another record in a wild run that is leaving investors worried about the potential impact on inflation, consumer spending and corporate profits.
American International Group Inc. shares fell 8.3 per cent in premarket trading, after the company reported a $7.8-billion first-quarter loss after markets closed on Thursday. The financial firm also said it needs to raise $12.5-billion in capital.
The U.S. trade deficit narrowed more than expected in March, thanks to a drop in imports that coincides with a slowing economy. The deficit shrank to $58.2-billion, from $61.7-billion in February.
In Canada, the economy continues to generate jobs, even as many economists see slower U.S. economic growth spilling over the border. Statistics Canada reported that the economy produced 19,200 jobs in April, more than expected and ahead of the jobs growth in the previous month. Manufacturing was weak, but was offset by strong growth in construction.
“While the latest climb in Canadian employment sports the odd blemish – a higher jobless rate, weakness in private sector jobs – the main point is that job growth continues to churn ahead even in the face of a U.S. recessionette,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns, in a note to clients. “The Canadian results are consistent with slower growth, but are still a long, long way from anything close to a serious downturn."
David Berman, 08/05/08 at 6:46 PM EDT
Here's Allan Robinson's At The Bell which you'll find in Friday's newspaper:
The Canadian economy is cooling down and the employment data scheduled for release today are expected to show new jobs continue to be created, although at a much slower pace.
As a result, domestic interest rates are headed lower, but the Canadian dollar should remain at close to par with the U.S. dollar, strategists say.
WHAT TO KEEP AN EYE ON
The number of new jobs is expected to decline to 10,000 in April from 14,600 in March, according to a survey of economists by Bloomberg. The unemployment rate is expected to hold steady at 6 per cent.
During the past year, the domestic economy has created 325,000 new jobs or a monthly average of almost 27,100.
“After finally losing some momentum in March, we also look for average hourly wages to slow a bit further, easing to a 4.5 per cent year-over-year pace [in April], down from [a recent] high of 4.9 per cent around the turn of the year,” said Douglas Porter, deputy chief economist with BMO Nesbitt Burns Inc.
“The Bank of Canada is responding to weakening inflation pressures and slower growth,” said Paresh Upadhyaya, senior vice-president and currency portfolio manager for Putnam Investments. “The [U.S. Federal Reserve Board] appears to be in a holding pattern looking to scrutinize the data, while the Bank of Canada appears ready to act and make a cut or two.”
HOW WILL THE MARKET REACT?
The narrowing of the interest differential between the United States and Canada could result in a weaker loonie, Mr. Upadhyaya said. “I'm not looking for a major depreciation,” he cautioned. The loonie traded at 98.5 cents (U.S.) yesterday.
The dollar has been trading in a narrow range of range of 98 cents to $1.03 since November and this is during a period in which commodity prices soared, said Mark Chandler, the head of North American fixed-income and currency strategy for RBC Dominion Securities Inc. The Canadian dollar is back to fair value and it is not overvalued, he said.
RBC is looking for the Bank of Canada to lower the target overnight bank rate by one-quarter of a percentage point to 2.75 per cent, but then go on hold given the relative strength of the economy. It expects the Fed will be back into rate-cutting mode in the fourth quarter after the temporary effects of the tax stimulus wear off. RBC forecasts the Fed could cut the federal funds rate another half percentage point.
David Berman, 08/05/08 at 2:51 PM EDT
With crude oil hitting yet another (yawn!) record high on Thursday, it is worth pointing out that the commodity has been awfully good for Canada's energy-heavy benchmark index.
The S&P/TSX composite index closed at 14,607.99, up 236.46 points or 1.7 per cent – meaning that it has now risen more than 20 per cent since it bottomed out in a wild selloff in January. You can thank two factors for the rebound: potash and oil.
Crude oil has risen more than 40 per cent over this period, leading to a 36 per cent rally in the energy sub-index (oil hit a new high of $124.61 (U.S.) a barrel on Thursday, up about a buck). Potash Corp. of Saskatchewan Inc. has risen 69 per cent, helping lift the materials sub-index 25 per cent higher.
As for gold, which is a big part of the materials sub-index, the commodity hasn't had a big impact. In fact, since the index's low on Jan. 21, gold has gone nowhere – rising spectacularly to a record of $1,002 an ounce before settling back to where it began. Gold stocks, as represented by Barrick Gold Corp., have fallen about 12 per cent.
The Dow Jones industrial average closed at 12,866.78, up 52.43 points or 0.4 per cent on Thursday. Alcoa Inc. rose 4.1 per cent and Chevron Corp. rose 2.3 per cent. On the downside, financials were hit hard: American International Group Inc. fell 2.1 per cent and Bank of America Corp. fell 1.8 per cent. The broader S&P 500 closed at 1397.68, up 5.11 points or 0.4 per cent.
David Berman, 08/05/08 at 2:34 PM EDT
As the S&P/TSX composite index moved toward record territory on Thursday afternoon, it made a sudden lurch 50 points higher between 1:30 and 2 p.m. (EDT). Are investors are getting a little antsy?
Turns out, those twin outperformers – Research In Motion Ltd. and Potash Corp. of Saskatchewan Inc. – are at it again. Potash Corp., treading water during the earlier part of the day, jumped about $2 a share during those 30 minutes of trading. RIM rose about $1.50. Given the huge weighting these two stocks have in the benchmark index, their rise could explain a big part of the index's move.
Of course, they also had help from the energy and materials sectors, which rose 0.3 per cent and 0.6 per cent, respectively. (Potash is a member of the materials sub-index.) Crude oil hovered beneath the $123 (U.S.) a barrel mark. Gold rose nearly $13 an ounce, to about $882.
David Berman, 08/05/08 at 12:45 PM EDT
Turns out, embattled Timminco Ltd. has at least one keen supporter: an independent consulting firm.
Obviously stung by criticisms that its silicon production facility might not be up to snuff, the specialty metals producer hired a consulting firm to inspect its facilities, intellectual property and technical processes to come to its own conclusions.
Those conclusions, just released, are nothing short of gushing: "Operations and processes have potential for massive growth and, possibly, for reshaping the silicon industry," said Michael Rogol, managing director of Photon Consulting, in a release issued after trading in Timminco shares was halted.
In other words: Take that! short-sellers and other doubters. So far, investors are impressed. Before the halt, Timminco's shares were up 4.1 per cent; shortly after the halt, they were up 7.6 per cent
David Berman, 08/05/08 at 12:34 PM EDT
U.S. consumer spending showed signs of life in April, but cautious investors are not exactly storming the check-out aisles of the stock market on Thursday, with high energy costs casting a big question mark over the months ahead.
The S&P/TSX composite index rose 105 points, to 14,476. Materials enjoyed the biggest gains, thanks to a rally among gold producers that followed the price of gold higher. Goldcorp Inc. rose 7.3 per cent and Barrick Gold Corp. rose 4.2 per cent. Gold rose about $16 (U.S.) an ounce, to $884 – though it is still well below its recent high of more than $1,000 an ounce.
Meanwhile, energy stocks rose 1.4 per cent even as the price of crude oil dipped slightly to about $122 a barrel.
Manulife Financial Corp. was among the biggest laggards, tumbling 4.7 per cent after the insurance giant reported first-quarter earnings that fell thanks to lower investment income. It didn't help that its superstar chief executive officer, Dominic D'Alessandro, announced that he will step down in a year.
In the United States, investors did not make much of news that sales at stores open for at least one year were higher than expected in April, at least at the lower end of the retail spectrum. The Dow Jones industrial average rose 39 points, to 12,854. There, Alcoa Inc. rose 3.5 per cent and Chevron Corp. rose 1.3 per cent.
The broader S&P 500 rose 3 points, to 1396. Wal-Mart Stores Inc. rose just 1 per cent after the retailer announced strong same store sales in April that blew past expectations.
David Berman, 08/05/08 at 12:05 PM EDT
Timminco Ltd., the specialty metals producer that has been the target of short-sellers lately, halted the trading of its stock in Toronto on Thursday, just before noon (EDT). Whatever could it mean?
The stock was on a roll earlier this year and was the top performer on theS&P/TSX composite index in 2007. It rose to a high of $28.50, then fell sharply on growing concerns surrounding the company and its operations. The shares were up 4.1 per cent on Thursday before trading was halted.
Theories are welcome.
David Berman, 08/05/08 at 12:01 PM EDT
If you believe what you hear, everyone saw the technology bubble coming and everyone saw the U.S. housing bubble as a balloon just waiting to go pop. But the stunning rise of crude oil, up more than 500 per cent over the past six-and-a-half years and showing few signs of slowing down, still leaves commentators debating its staying power. Is it a bubble or a sane reflection of the world's growing thirst for energy?
Bespoke Investment Group doesn't actually come out with a firm conclusion on the matter, but they have created an interesting chart comparing the rise of Nasdaq, homebuilder stocks and oil, in terms of percentage gains, over the past 2000 trading days. All three charts show a steady rise, followed by a hyperbolic breakout to a peak. In the case of Nasdaq and homebuilder stocks, the peak is followed by a bust, of course – which makes the rise of oil look as though it could fit into a similar pattern.
What's particularly interesting is that oil has now surpassed the peak of Nasdaq in early 2000, in terms of its percentage gains, and it is closing in on the homebuilders. As Paul Kedrosky, who reproduces the chart on his Infectious Greed blog, says: “Oil just out-bubbled the tech bubble.”
