MarketView for March 14

Summary 

The major equity indexes ended the day lower on Monday, due in no small part to the devastating earthquake in Japan. However, other than some very specific industries, such as nuclear power, the broad impact on equities will likely be short-lived. Part of the concern came from the statistic that Japanese ports handling about 7 percent of the country's industrial output sustained major damage, disrupting the global flow of goods.

Trading volume was unusually low compared with other sell-offs, with 7.68 billion shares changing hands on the three major exchanges, a number that was well below last year's daily average of 8.47 billion shares. The recent pullback in stocks had been accompanied by high volume.

Nuclear power stocks fell after explosions at a Japanese plant. The Market Vectors uranium and nuclear energy exchange traded fund fell 12 percent while the Global X Uranium ETF ended the day down 17percent. But the Market Vectors Solar Energy ETF of alternative energy shares managed a gain of 7.2 percent.

Two nuclear power companies, Shaw Group, which ended the day down 9.2 percent to close at $34.87, and Cameco, down 13 percent to close at $32.62, traded on volume that was more than 10 times their 10-day average. General Electric, which has combined nuclear ventures with Hitachi, closed down 2.2 percent at $19.92 and was the top percentage loser among the thirty companies making up the Dow Jones industrial average.

Texas Instruments ended the day down 2.2 percent to close at $33.80 in extended-hours trading after the company reported that it will lose revenues due to production delays at its Japanese facilities from quake-related interruption of power.

Domestically listed shares of Japanese companies declined and the BNY Mellon index of leading Japanese American Depositary Receipts fell 5.3 percent. Toyota, which said it would suspend production at all its Japanese car plants, fell 4.6 percent to $81.73. The iShares MSCI Japan index exchange traded fund closed down 7 percent.

Meanwhile, The Standard & Poor's 500 index came off the session's bottom after falling to a six-week low. The CBOE volatility index .VIX, which measures anticipated volatility, was up 5.6 percent.

Shares of luxury goods companies worldwide were hit since Japan accounts for 11 percent of global luxury sales. Tiffany fell 5.3 percent to $59.86, while Coach was down5.3 percent to $53.11.

Aflac, the largest foreign insurer in Japan, fell 3 percent to $53.90 as experts estimated that the devastating earthquake in Japan could cost the insurance industry nearly $35 billion. If options trading is any indication, the Street is expecting the stock to fall in excess of 8 percent from the current price to about $49 by April expiration.

Apple rose 0.5 percent to $353.56 on estimates that the company sold close to 1 million units of iPad 2, its next-generation tablet computer, during the product's debut weekend.

Bank of Japan Opens the Coffers

Japan's central bank on Monday lost no time in attempting to bolster the markets in the wake of the country's worst disaster since World War II, although the authorities said it was too early to put a figure on the damage or the funds required to repair the damage.

Japan's central bank doubled its asset buying scheme to 10 trillion yen ($122 billion) and held interest rates at 0-0.1 percent after it earlier said it would pump a record 15 trillion yen into the banking system, though some economists said it could have done more. Nonetheless, the Nikkei average closed down 6.18 percent on Monday.

Meanwhile, engineers were fighting an uphill battle to prevent a nuclear meltdown at the Fukushima Daiichi complex owned by Tokyo Electric Power, where three reactors threatened to overheat in the worst atomic power accident since Chernobyl in 1986. As a result, a number of high profile Japanese manufacturers, including Sony, Toyota and Panasonic have shuttered production lines, with restart efforts hampered by quake aftershocks.

About a fifth of the country's nuclear power generation capacity has been shut down by the disaster. Thermal plants also shut down, forcing the world's third-biggest economy to instigate rolling blackouts to conserve energy. The triple blow of quake, tsunami and nuclear accident is set to damage the already struggling economy harder and longer that initially expected.

While a quick economic rebound, similar to what occurred after the Kobe earthquake in 1995, would be nice, it is unlikely because in part to Japan's indebtedness, which at twice the size of gross domestic product means the government has less room for maneuver. Keep in mind that after the Kobe earthquake, the government adopted an extra budget worth around 3 trillion yen

TEPCO, the largest power company in Japan, said on Sunday rolling blackouts would affect 3 million customers, including large factories and buildings from Monday onwards. It aims to end the blackouts by the end of April. At the same time, policymakers face a monumental task reviving the economy, not only because of the scale of the disaster but because of their limited options.

The Bank of Japan has little room to move on rates, thanks to the legacy of the global financial crisis and years of economic stagnation, in stark contrast to New Zealand, where the central bank last week slashed interest rates by half a percentage point to 2.5 percent to support an economy hit by a 6.3 magnitude earthquake on February 22.

The benchmark Nikkei stock average fell on concerns about rolling power blackouts hit the value of auto and electronics firms and the yen slid against the dollar. Sony fell 9.1 percent by the close of trading. The firm has suspended production at eight plants. Nissan fell more than 9.5 percent after it shut down all four of its auto assembly plants in Japan.

The prospects of a massive recovery effort boosted contractor companies. Kajima Corp rose more than 22 percent and Hazama Homes more than 19 percent. Nonetheless, the market impact of the disaster will be felt far beyond Japan. Companies that trade with Japan face a loss of business and worries that governments will look at nuclear power less favorably.

Almost 2 million households are without power in the freezing north and about 1.4 million lack running water. Kyodo news agency said 80,000 people have been evacuated from a 20-km (13 mile) radius around the stricken Fukushima nuclear plant, adding to 450,000 evacuees from the quake and tsunami.

TEPCO said on Monday it had reported a rise in radiation levels at the complex to the government. Authorities had been pouring sea water to keep the fuel rods in the reactors cool. Nuclear experts said it was probably the first time in the industry's 57-year history that sea water has been used in this way because it ruins a reactor and is a sign of how close Japan may be to a major accident such a reactor core meltdown.