MarketView for January 21

Summary

It was a pretty good day on Wall Street on Wednesday, and now that we have a new President, the country can get back to business. Helping the day’s trading activity was a rebound from a two-month low by IBM after the company delivered a better than expected earnings report that fueled optimism within the technology sector. IBM saw its share price rise 12 percent to $91.42 after the company posted quarterly earnings that led investors to believe the Dow component can weather the global economic downturn.

The Dow Jones industrial average turned in its largest point and percentage gain since December 16, 2008, but the index remains down 6.3 percent month-to-date.

Technology shares may also see some momentum as a result of Apple’s reported quarterly profit that exceeded Wall Street estimates after the bell and gave an outlook for its second quarter. Apple's stock rose 10 percent to $90.85 in extended trading. Apple led the NASDAQ higher, ahead of its quarterly earnings report after the closing bell, and in spite of a report that U.S. regulators were examining the company's disclosures about CEO Steve Jobs' health. Apple's stock closed at $82.83, up 5.9 percent.

Intel saw its share price gain one percent to $13.40 in extended trading after the company indicated that it would close sites in Asia and scale back operations in the United States in a restructuring that could affect up to 6,000 jobs.

Financial stocks also performed well on the strength of earnings surprises from Northern Trust and PNC Financial Services, helping the group reclaim some of Tuesday's massive losses that dropped the financial sector to a 14-year low.

Northern Trust said that its net income more than doubled. The financial services company's shares rose nearly 31 percent to $57.51. PNC Financial also projected lower loan losses from its purchase of National City, sending its shares up 37 percent to $30.16.

During the regular session, the market shrugged off a brief sell-off after Timothy Geithner, President Obama’s nominee for Treasury Secretary, faced tough questioning at his confirmation hearing before a Senate committee.

Hearings on Geithner's appointment attracted the market's attention for much of the day as he is seen as President Barack Obama's point man in battling the economic crisis. As the president of the Federal Reserve Bank of New York since 2003, Geithner is expected to hit the ground running if confirmed as Treasury secretary. The Senate Finance Committee is scheduled to vote on Geithner's nomination on Thursday.

A day after his historic inauguration, Obama met with his economic advisers, who are working with the Democratic-led Congress on an $825 billion fiscal stimulus package.

Shares of Bank of America climbed 31 percent to $6.68 after Chief Executive Kenneth Lewis purchased 200,000 common shares, four days after the company posted its largest quarterly loss in 17 years. JPMorgan Chase ranked as the Dow's second-biggest advancer, surging 25.1 percent to $22.63.

On the downside, Wal-Mart was the heaviest weight on the Dow after being downgraded to a "neutral" rating by Credit Suisse. Shares of Wal-Mart closed down 2.8 percent to $49.14.

After the bell, shares of eBay fell nearly 7 percent in extended trading to $12.36 after the online auctioneer posted a lower fourth-quarter profit and gave a disappointing outlook for its current quarter as consumer spending declines. In regular trading, before the earnings release after hours, eBay's stock gained almost 6 percent to close at $13.28 on NASDAQ.

There Is No Secret Formula To Investing

If you were envious of hedge funds because you were not in one and thought they had the secret ingredient to successful investing, guess what...they didn’t. In fact, investors pulled a record $155 billion out of hedge funds last year, as they delivered their worst-ever returns, according to numbers released on Wednesday.

Hedge funds around the world now manage an estimated $1.4 trillion, the same sum they managed in 2006 and far less than the $1.93 trillion they invested in the middle of 2008, Chicago-based tracking firm Hedge Fund Research said. Furthermore, this is only the second time since 1990 that the exclusive and often secretive hedge fund industry suffered net outflows for the full year, HFR said.

Consulting firm Hennessee Group, which also tracks performance and asset flows, said last year was the worst for the industry in terms of performance and redemptions since 1987.

HFR reported that investors simply wanted their money back last year, paying little attention to the size of the hedge fund they were invested with, its particular strategy, or how the hedge fund was performing.

"Investor risk aversion remained at historically extreme levels through year end, even as implied and realized asset volatility moderated," HFR president Kenneth Heinz said in a statement.

At the end of the year many hedge fund firms, including industry powerhouses Tudor Investment Corp and Citadel Investment Group, took an unusual step and told their investors they could not get their money back just yet as they suspended redemptions.

Despite many managers' promises to make money in all markets, the average hedge fund lost 19 percent last year, marking the industry's first full year loss since 2002 when the average fund slipped 2.9 percent, Hennessee Group data show. Hedge funds can sell securities short and use leverage, trading techniques that are off limits at most other portfolios.

As a group, hedge funds outperformed the average stock mutual fund's 38 percent drop, but many suffered losses far steeper than the average 19 percent decline. Faced with a worsening financial crisis, the collapse of Lehman Brothers and declining stock markets, many of those who were in hedge funds, raced for the exits in the third quarter. They stepped up their calls to exit in the fourth quarter, pulling out $152 billion in the last three months alone, HFR data show.

Unlike most mutual funds, many hedge funds lock up assets for months and sometimes years, often requiring their investors to give 45 days' notice before getting their money back.

Builder Sentiment Falls Again

Home builder sentiment fell to a new low in January as concerns over a faltering economy, combined with a dearth of customers,  hurt confidence in the market for newly built single-family homes, the National Association of Home Builders said on Wednesday.

According to the association,  its preliminary NAHB/Wells Fargo Housing Market Index was 8 in January, down from 9 in December. That is the lowest level on record since the gauge was launched in January 1985. Readings below 50 indicate more builders view market conditions as poor than favorable.

Interest rates on mortgages have fallen sharply recently, a key development that could help turn around the hard-hit housing sector, but not enough to improve demand at this point. The housing market is suffering the worst downturn since the Great Depression as a huge supply of unsold homes; tighter lending standards and record foreclosures push down home prices.

"Clearly, conditions in the nation's housing market aren't getting any better, and they aren't going to get any better until the federal government takes substantial action to encourage qualified buyers to get back in the market," NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, West Virginia, said in a statement.

The gauge of current single-family homes sales fell to 6 from 8. The index of sales expected in the next six months, however, increased to 17 from 16. The prospective-buyer traffic measure also climbed, rising to 8 from 7, the NAHB said.

Home builders have curbed new construction as they have been working through inventories of unsold homes by slashing prices at the expense of profits to pay off debt and keep afloat.

On a regional basis, the housing market index declined in two out of the four regions in January. The Northeast posted a one-point decrease to 10 and the Midwest was unchanged at 6. The South posted a one-point gain to 11 and the West posted a three-point decrease to a new record low of 4 this month.

Bank of America CEO Buys 200,000 Shares

Bank of America Chief Executive Ken Lewis spent about $1.2 million to buy 200,000 common shares on Tuesday; four days after the bank posted its first quarterly loss in 17 years. The share purchases by Lewis and five directors suggest confidence in prospects for the bank, which last week posted a $1.79 billion fourth-quarter loss and took a $20 billion infusion from the government's Troubled Asset Relief Program to help it absorb Merrill Lynch. Bank of America bought Merrill on Jan 1, and has now taken $45 billion of TARP funds. As part of the latest package, the government agreed to share in losses on $118 billion of debt.

According to a Wednesday filing with the U.S. Securities and Exchange Commission, Lewis paid between $5.98 and $6.06 for his shares, well above the Tuesday closing price of $5.10. Following the transactions, Lewis directly owned 1,460,997 common shares, worth $7.45 million based on the closing price. Lewis also indirectly held 542,235 bank shares through various trusts, and last Nov 4 bought 86,000 preferred shares.

The directors who bought shares on Tuesday include lead director O. Temple Sloan, who bought 41,800 common shares and then gifted 11,000 of them, a SEC filing shows.

Bank of America’s shares have lost more than three-fourths of their value since the purchase was announced Sept 15.