[OPE-L] Wall St tumbles as bear market looms
From: Alejandro Valle Baeza (valle@SERVIDOR.UNAM.MX)
Date: Wed Jan 23 2008 - 10:59:06 EST
Despite FED's stocks dip:
Financial Times FT.com
Wall St tumbles as bear market looms
By Michael Mackenzie in New York
Published: January 23 2008 14:01 | Last updated: January 23 2008 15:33
Wall Street was once again deep in the red at midmorning on Wednesday,
and stocks faced the prospect of extending losses for six straight days
amid some downbeat earnings guidance and concerns that a fully fledged
bear market looms.
Risk aversion was the theme across markets, with the yen making a two
and a half year high against the dollar and the yield on the two-year
Treasury down 16 basis points at 1.90 per cent, a fresh multi-year low.
Stocks pared heavy losses on Tuesday, but still closed lower on the day
after the Federal Reserve cut its overnight Fed funds rate to 3.50 per
cent from 4.25 per cent, a week before its scheduled meeting.
European stocks were sharply lower, hurt by weak data and the fear of
more bank writedowns.
“The concerns that started in the US have clearly leaked to the global
economy, and Treasuries continue to respond to the threat of a global
slowdown,” said David Ader, bond strategist at RBS Greenwich Capital.
Less than an hour after the opening bell in New York, the S&P 500
index was down 1.6 per cent at 1,289.29 and had traded in a range
between 1,277.23 (down 2.5 per cent) and 1,310.41 (down 0.01 per cent).
The broad measure of the US market has fallen 12 per cent this month
and is 17 per cent below its record peak of 2007.
The S&P March futures contract was trading at 1,284.50, down 1.9
per cent on the day, but had bounced from a low of 1,265. Traders say
the 1,270/1,275 is a significant support area for the contract and
further weakness targets an eventual fall to the 1,100/1,1150 area.
Meanwhile, equity volatility as measured by the Vix index was ascendent
at midmorning, up 5.5 per cent at 32.71.
The Nasdaq Composite led the major benchmarks lower at midmorning, down
2 per cent at 2,245.98, taking its decline from its October peak to
more than 20 per cent, meeting the definition of a bear market. It now
joins the Russell 2000 index of small companies as being in a bear
territory. Both benchmarks are barometers of a pending recession.
Sentiment for technology stocks was battered after Apple reported a 57
per cent jump in first-quarter profit on Tuesday but lowered its
outlook. Apple shares plunged 11 per cent.
The Dow Jones Industrial Average was trading 1.5 per cent lower at
11,796.09 and has fallen 16 per cent from its high of last year.
Sentiment among traders and analysts has turned bleaker as rate cuts
and the prospect of more to come are not helping staunch the selling
flows across the equity market.
“Given an awful beginning for stock prices and the unlikely proposition
for earnings to provide much relief near term, we no longer believe
that first half equity market strength will be achieved,” said Tobias
Levkovich, chief US equity strategist at Citi. He said a second half
rebound is now probable, but cautioned “trying to definitively call the
market’s bottom seems risky.”
Citi also lowered its 2008 year end target for the S&P 500 to 1,550
from a prior estimate of 1,675.
In spite of the Fed’s move on Tuesday, interest rate futures are
pricing in an even chance that the Fed funds rate will fall by another
75 basis points next week at the central bank’s January meeting.
The aggressive pricing of rate cut expectations hurt the dollar, which
was 0.8 per cent lower against the yen at Y105.57, after falling as low
as Y104.98, down 1.4 per cent.
The yield on the policy sensitive two-year Treasury note was near its
recent low of 1.86 per cent and the move by Treasuries reflects in part
the concern that both the US and global economies are set to slow down
markedly this year. That prospect would hinder the US export sector and
deepen weakness in the overall economy.
Ted Wieseman, economist at Morgan Stanley, said the inability of the
global economy to decouple from the US meant investors “will almost
certainly be looking at a deeper and more protracted US recession.”
Fears over slowing global growth hit oil prices. US crude futures were
down $1.02 at $88.19 a barrel.
European stocks were sharply lower after the open on Wall Street. The
FTSE Eurofirst 300 index was 3.3 per cent weaker, with the FTSE 100 in
London down 2.7 per cent. Germany’s Dax index was 4.6 per cent lower
while in Paris, the CAC-40 had lost 2.6 per cent.
Asian equity markets rebounded sharply, and Hong Kong jumped 10.7 per
cent as interest rates were cut as the currency is pegged to the US
dollar. Japan’s Nikkei 225 index rose 2 per cent.
The fourth-quarter US earnings season swings into a higher gear on
Wednesday. Before the opening bell General Dynamics said quarterly
profit rose 42 per cent, but the defence contractor projected full year
earnings below analysts’ estimates. The stock was down 1.8 per cent at
Shares in Motorola plunged 15.4 per cent to $10.42, after its quarterly
net profits fell 84 per cent. The cell phone maker also warned that its
turnaround strategy will take longer than expected.
United Technologies reported a 23 per cent gain in quarterly earnings
and reiterated its profit outlook. The stock was trading 0.1 per cent
higher at $67.31.
Pfizer recorded quarterly profit and sales that exceeded estimates. The
drugs group’s stock had rose 0.6 per cent to $22.36.
After the close on Tuesday, Texas Instruments said fourth-quarter
profit rose 13 per cent on higher sales of wireless devices. The stock
was trading 1 per cent lower at $28.70.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times.
© Copyright The Financial Times Ltd 2008.
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