MarketView for February 9

Summary

The markets took a bit of a breather on Monday as Wall Street waited to see exactly what the Administration and the Treasury Department will announce in terms of a bank bailout program on Tuesday. Meanwhile, falling oil prices hurt energy shares and a brokerage raised concerns about Coca-Cola and PepsiCo. Crude oil fell below $40 a barrel in a late sell-off on Monday, sending the shares of ExxonMobil down 1.1 percent to $79.48.

Uncertainty over the bank rescue plan has shaken financial shares, pushing them down nearly 21 percent year-to-date on fears that the government would be forced to nationalize some banks. Those fears have now been easing on expectations the plan will focus on getting private investors to buy up bad debts.

In addition, the ability of the financial sector as a whole to impact the market has been greatly diminished because the decline in the share prices of financial companies has reduced their market caps, thereby reducing their weight in the various indexes.

Shares of leading soft drink makers Coca-Cola and PepsiCo fell after broker downgrades and lower price targets on the shares. Further pressuring Coke was news that Australasian brewer Lion Nathan Ltd dropped a $4.9 billion bid for Australian soft drinks company Coca-Cola Amatil Ltd, whose main shareholder is Coca-Cola, after talks fell apart. The end result was that Coca-Cola ended the day down 2.9 percent to $42.06, making it the largest drag on the Dow Jones industrial average, while PepsiCo closed down 3.9 percent at $51.43.

General Electric was one of the positive performers among the blue-chips, closing up 13.9 percent to $12.64 on hopes its financial arm, General Electric Capital Corp will benefit from the bank bailout. Prior to today, GE chalked up six consecutive losing sessions.

Apple was up 2.8 percent to $102.51 after a broker upgrade, countering a decline in Microsoft, which fell on some profit taking following last week's advance. Microsoft shares closed down 1.1 percent at $19.44 after gaining more than 14 percent the previous week.

Crude Falls Below $40 per Barrel

Oil prices fell on Monday as a gloomy demand outlook outweighed talk of OPEC production cuts and hopes that the economic stimulus package would be passed by Congress this week.

Domestic sweet crude for March delivery settled down 61 cents per barrel at $39.56. London Brent settled down 19 cents per barrel at $46.02.

Early in the trading day, oil prices gained some momentum as a result of comments from OPEC’s secretary general stating that the group could cut oil output further to counter slumping demand. Secretary-General Abdullah al-Badri reiterated OPEC's willingness to cut oil production further to steady prices at the group's next supply policy meeting on March 15 in Vienna.

"If we think we still need more action, I'm sure the conference will take more action to stabilize the market," Badri said. Badri also said the 12-member group appeared to be implementing production cuts more thoroughly than expected by some, with 80 percent compliance.

OPEC agreed late last year to cut oil supply by 4.2 million barrels per day from September's level in an attempt to boost prices.

The market also drew support from optimism over the likelihood of passage this week of the economic stimulus plan. Oil prices have dropped precipitously as the global economic downturn has dramatically reduced the demand for fuel.

Pension Funds Getting Tough

Calpers, the largest U.S. public pension fund, is planning to rally big investors nationwide to demand changes to the way Wall Street operates, its chief executive Anne Stausboll told the Los Angeles Times.

The fund will work with other state pension funds and retirement systems to insist on greater openness in the way companies are run, tougher regulation by federal agencies, stricter rules on investment-rating groups and better international financial oversight, Ms. Stausboll said.

“Calpers will be a leader in trying to drive reforms to change the market both here in the United States and globally in order to restore trust and full transparency,” she said.

Initial partners in the campaign include the California State Teachers Retirement System and pension funds in New York state and Connecticut, the paper cited Ms. Stausboll as saying.

The pension fund, which has lost more than a quarter of its value in the last seven months, also plans a thorough review of its investments in May, Ms. Stausboll said. The review “is designed to look at whether we want to make any adjustment based on what’s going on in the market.

Bank Shares up On Hope

Share prices of banks were higher on Monday, as investors took to heart the idea that a government bailout plan that the Treasury Department plans to release on Tuesday will enable troubled financial institutions rid their balance sheets of toxic assets while at the same time not nationalizing the banks and thereby wiping out shareholders.

Shares of Bank of America, the largest domestic bank by assets, closed up 12.4 percent to $6.89 after falling in recent days to their lowest level in 25 years. Citigroup was up 1.02 percent to $3.95. Among the large regional banks, Huntington Bancshares closed up 10.6 percent, Fifth Third Bancorp up 9.9 percent and Regions Financial up 10.5 percent.

However, JPMorgan Chase fell 1.27 percent to $27.28. The second-largest domestic bank is in better shape than its peers and is unlikely to benefit as much from the bailout.

Treasury Secretary Timothy Geithner is set to reveal on Tuesday how the Obama administration plans to use the $350 billion remaining in the $700 billion Troubled Asset Relief Program (TARP).

Obama's team is turning its efforts to cleaning up toxic assets clogging the financial system. It is expected to propose a range of measures, including injecting fresh capital through further acquisitions of stakes in banks, buying up toxic assets, and protecting banks against losses on such assets.