|
|
MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Friday, July 16, 2010
Summary
Economic data that failed to inspire, in combination
with some anemic revenue statistics from GE and Citigroup and Bank of
America, served as an Albatross around the neck of Wall Street on
Friday, sending the major equity indexes down more than 2 percent. The
slide in the S&P 500 was a decisive break of an 8 percent rise over the
last two weeks as Wall Street came to the conclusion that it would take
more than strong earnings to overcome doubts about the economic outlook. GE, Bank of America and Citigroup joined the list of
major companies that exceeded Wall Street's expectations, but investors
took money off the table after all three reported a drop in quarterly
revenues. Bank of America slid more than 9 percent as new worries
surfaced with regard to how banks will profit going forward. During
Friday's session, GE's stock fell 4.6 percent to $14.55, while Citigroup
lost 6.3 percent to $3.90. Bank of America was down 9.2 percent at
$13.98. For the week, the Dow was one percent lower, the S&P
500 was down 1.2 percent and the Nasdaq fell 0.8 percent. Weak energy costs pushed consumer prices down for a
third straight month in June, the Labor Department reported. Add in the
Thomson Reuters/University of Michigan data and to Wall Street the
economic indicators are pointing to a definite slowing of the economic
recovery. Google saw its share price fall after the company
failed to meet profit expectations for the first time in two years. The
shares closed down 7 percent at $459.61. Among the Nasdaq's other leading decliners, Gilead
Sciences fell 8.5 percent to $31.94 after Jefferies cut its price target
on the stock to $38.00 from $48.00. The Thomson Reuters/University of Michigan survey of
consumers showed U.S. consumer sentiment fell far more than expected to
66.5 in a preliminary July reading, down sharply from 76.0, June's final
number.
Consumer Prices Fall
The Labor Department’s primary index of consumer
prices, the CPI, was lower for the third straight month in June while
consumer sentiment nearly hit its lowest point in nearly a year in July. According to the Department, June’s CPI fell 0.1
percent in June after falling 0.2 percent in May. The so-called core
number, which removes the volatile food and energy sectors, was up 0.2
percent, its largest monthly gain. The discrepancy in June is due to
energy prices falling 2.9 percent, while food prices were unchanged. A rise in rental costs after months of stagnation
allowed the core CPI to move higher. The core rate had risen 0.1 percent
in May and markets had expected a similar gain last month. A second report from the Labor Department indicated
that consumer sentiment early this month pulled back from a near 2-1/2
year high on worries over income and the pressing unemployment
situation. Consumer prices have not declined for three
successive months since October-December 2008. In the 12 months to June,
the CPI rose 1.1 percent, the smallest advance since October, and a
sharp slowdown from the 2 percent in the period through May. Recent data ranging from consumer spending to
manufacturing imply the recovery from the longest and deepest recession
since the 1930s has come close to stalling in recent months. With inflation subdued, the unemployment rate at a
9.5 percent rate and domestic demand lackluster, it is unlikely the
Federal Reserve will move to raise interest rates before the second half
of next year. Wholesale price readings have also suggested scant
inflation pressure. Prices received by farms, factories and refineries
fell for a third straight month in June, the government said on
Thursday. Furthermore, the minutes of the Fed's last policy meeting,
released on Wednesday, showed a few officials have begun to worry about
the risk of deflation -- an economically disabling, broad-based decline
in consumer prices. The monthly core inflation rate was bumped up by a
0.8 percent in apparel costs, the largest increase in 16 months. Used
cars and trucks, which rose 0.9 percent last month, also contributed to
the rise in core inflation, as did a 1 percent rise in tobacco prices. In the 12 months to June, the core inflation rate
rose 0.9 percent, increasing by the same margin for a third straight
month. The rise was in line with market expectations and matched the
lowest core inflation rate since January 1966. Most Fed officials would
like to see inflation in a 1.7 percent to 2 percent range.
The SEC Came Out the Winner over Goldman Sachs
At first glance, the $550 million settlement looked
like a victory for Goldman Sachs and a loss for the Securities and
Exchange Commission and its ambitious charges against the Wall Street
titan. However, a closer look suggests the SEC played a relatively weak
hand pretty well. The settlement, over charges that Goldman marketed a
subprime mortgage product fraudulently, was little more than a slap on
the wrist for the investment bank financially. No heads have rolled and
the internal changes to which it agreed were relatively modest. The bar was high, though, to prove fraud, and
Goldman's admission that it made a mistake when marketing a subprime
product is rare in such deals. Even a few billion in fines would seem
like a pittance to Goldman. "They took on the biggest investment bank in the
world, charged it with fraud, received a settlement in excess of half a
billion, and a concession that Goldman omitted significant facts," said
Harvey Pitt, a former Republican chairman at the agency. "It's a huge
win for the SEC." Securities lawyers including former SEC officials
were surprised that the agency, which in recent years has been
criticized as weak and ineffective, forced Goldman to admit it made a
mistake. If a federal judge approves the settlement as
expected, it will represent an accomplishment for the head of SEC
enforcement, Robert Khuzami, and his staff. The former federal prosecutor was hand picked by
Schapiro to help restore the agency's reputation after it was humiliated
for failing to stop Bernard Madoff's $65 billion fraud. Goldman, of course, gets to put the whole affair
behind it with little admission of wrongdoing and a small fine. However,
the SEC still has a lot more to prove and is under pressure from critics
who say the agency was asleep at the wheel in missing big scams in
recent years, like Madoff's Ponzi scheme. Many now look to the new powers given the SEC in the
landmark financial overhaul bill Obama will sign next week.
Crude Oil Futures Fall Crude oil futures fell below $76 per barrel on
Friday as weak consumer sentiment and falling consumer prices took a
toll. Texas sweet domestic crude for August delivery settled down 90
cents per barrel at $75.72 after touching an intra-day high of $77.15.
London Brent's new front-month September crude oil futures contract
settled down 86 cents per barrel at $75.23. Oil was on track to log a modest weekly decline from
the week of July 9, when oil settled up 5.5 percent to $76.09. That data
overshadowed a decline in the U.S. dollar, which is usually bullish for
crude because it makes oil cheaper for buyers that hold other
currencies.
|
|
|
MarketView for July 16
MarketView for Friday, July 16