MarketView for October 23

Summary 

 

It was another volatile day on Wall Street that followed the pattern of the last few trading days, with stocks swinging in a 7 percent range and the day's final direction only becoming clear in the last minutes of trading. Nonetheless, it is the final number that counts and on Thursday, share prices managed to claw their way back from Thursday’s five-year lows, with energy and health-care issues leading the parade. At the same time, the price of crude oil recovered from a 16-month trough and top pharmaceutical companies posted reassuring earnings.

 

In an otherwise dismal earnings season, drug makers Amgen, Bristol-Myers Squibb and Eli Lilly offered some relief with stronger-than-expected results and relatively positive outlooks. Amgen shares rose 11.8 percent to $55.55, Eli Lilly's stock gained 4.3 percent to $33.48 and Bristol-Myers Squibb rose 3 percent to $18.05. The three helped lead the S&P health-care index up 1.6 percent.

 

At the same time, a rebound in oil prices from their lowest since June 2007 fed a big rally in energy stocks, with Exxon Mobil and Chevron contributing the most to the Dow's 172-point gain. Exxon Mobil's shares rose 9 percent to $70.39, while Chevron's stock jumped 8.2 percent to $66.77. Crude futures for November delivery settled up $1.09, or 1.63 percent, to settle at $67.84 per barrel on expectations that OPEC will agree to cut output at an emergency meeting.

 

The day's sharp swings were exacerbated by hedge funds' and mutual funds' so-called forced selling of stocks to raise cash to meet their investors' large-scale redemptions, which also dragged on the market.

 

The rally in the last 30 minutes was not enough to pull the NASDAQ out of the red and the heavily technology laden index closed at a new five-year low, chalking up red ink for the third consecutive day on concerns over technology spending in a global economic slump.

 

Dow Chemical rose 10.5 percent to $24.43 after the chemical manufacturer posted lower third-quarter earnings, but still managed to exceed Street expectations on strong results from its agricultural business. However, Dow warned that the global economy was likely to struggle through a recession for most of 2009.

 

Coca-Cola was also a major drag on the Dow Jones industrial average falling 5.1 percent to $43.06. In the health-care sector,

 

Unemployment Insurance Claims Rise

 

The Labor Department reported on Thursday that rising claims for unemployment insurance increased by more than expected last week, the Labor Department as companies ranging from Goldman Sachs to Yahoo have announced thousands of layoffs in the past few days as the financial crisis, tighter credit, rising foreclosures and myriad other woes take their toll on the economy. According to the Labor department, new applications for unemployment insurance rose 15,000 to a seasonally adjusted 478,000, above analysts' estimates of 470,000.

 

Goldman Sachs announced that it plans to cut about 3,260 jobs, or approximately ten percent of its work force, in the face of what Greenspan called a "once in a century credit tsunami" that has claimed several of Goldman's rival investment banks.

 

Also on Thursday, Chrysler LLC said it will cut 1,825 jobs and Xerox Corp. said it plans to eliminate 3,000 positions, or 5 percent of its work force. Other companies have also announced reductions this week. For example, Yahoo is cutting 10 percent of its employees, or 1,500 people, Merck is eliminating 7,200 positions and National City plans to cut 4,000 jobs.

 

Jobless claims above 400,000 are considered a sign of recession. A year ago, claims stood at 333,000, the department said. The impact of the job losses is rippling through the economy. As jobs disappear, foreclosures rise when out-of-work homeowners can no longer make mortgage payments. Home foreclosure filings rose 70 percent in the third quarter, according to the listing service RealtyTrac Inc. Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, the company said.

 

Greenspan said that a necessary condition for the financial crisis to end will be stabilization in home prices but he said that was not likely to occur for "many months in the future."

 

The unemployment rate reached 6.1 percent last month, the Labor Department said, a five-year high and it is expected to exceed 7 percent next year.

 

The job market is also part of the political debate, as Democrats in Congress urge that unemployment benefits, which last for 26 weeks, be extended as part of a new economic stimulus package. Democratic presidential candidate Sen. Barack Obama endorsed that in a statement Thursday, and said he would also "suspend the taxes on those benefits and jump-start job creation by giving small businesses emergency loans and tax credits for each new job they create."

 

The four-week average of jobless claims, which smoothes out fluctuations, dropped slightly last week from a seven-year high to 480,250, the Labor Department said. The number of people continuing to claim unemployment insurance dropped by 6,000 to a seasonally adjusted 3.72 million, down from 3.73 million, a five-year high. However, three weeks ago, new benefit applications reached 499,000, the highest level in seven years and the second-highest since 1992.Claims were also higher last week because of the impact of Hurricane Ike in Texas, which added about 12,000 requests for unemployment benefits, the same as the previous week.

 

OPEC Is Running Scared

 

OPEC ministers anxious to arrest a deep oil price slide and cushion a bruised world economy gathered in Vienna Thursday ahead of emergency talks. International benchmark U.S. crude has slumped by more than 50 percent from a record high of $147.27 hit in July. On Thursday it it settled at $67.84 .

 

The price decline prompted OPEC to move ahead to Friday an emergency meeting originally set for November 18 and it has revived memories of the 1998 price collapse when oil sank below $10.

 

On arrival in Vienna, Venezuelan Minister of Energy and Petroleum Rafael Ramirez said there was a risk oil could fall back to that level and OPEC needed to act without delay. "We have to handle the situation in a very, very responsible manner as OPEC.... that way we can avoid a price collapse like 1998," he said. "There's going to be consensus to take a very, very, very fast action," he said of Friday's meeting, adding his view was the group needed to agree an initial cut of at least a million barrels per day.

 

Saudi Arabian Oil Minister Ali al-Naimi said simply that the oil price would be determined by the market. He would not be drawn on the need for any cut. The only OPEC producer to be pumping significantly above its official output target, Saudi Arabia would be expected to lead any reduction in supplies.

 

As economic slowdown has destroyed demand for oil and stocks have built, most OPEC ministers have said a cut was essential. However, they have differed over how much oil should be removed to limit oversupply and protect their economies, while avoiding more pain for the consumers they rely on.

 

OPEC President Chakib Khelil of Algeria was among those who said it could take more than one meeting to get the right balance between supply and demand and between producer and consumer needs.

 

"The concern of the producing countries is, whatever decision is made, not to have an impact on increasing the pain of consuming countries," Khelil told a news briefing. "The decision should not leave the producer countries in the situation where they will be joining the group of countries which are already suffering from the financial crisis."

 

Adding to the difficulty of its task, the group could struggle to enforce any reduction it agrees. In the past, those members who most needed revenue were reluctant to limit exports when the market is falling. The producer group's lack of discipline was in part responsible for pushing oil below $10 during the Asian economic downturn of the late 1990s.

 

Compared with then, even Venezuela and Iran, which have large social spending plans and are said to have the highest price needs, are better placed because they can live for a while off the profits of the record rally.

 

But any comfort they might take is offset by the scale of the global financial crisis. It threatens to destroy oil demand in emerging countries such as China, which had previously been expected to make up for any major drops in consumption in the world's biggest consumer the United States.

 

"I've seen a lot of crises. I saw the Asian crisis. I saw the Japanese crisis," said Qatari Energy Minister Abdullah al-Attiyah. "I've seen different crises here and there, but to see this kind of financial crisis, I have never seen it before."

 

Bank Stocks Get Hit Across The Globe

 

Banks were down in price across the globe on Thursday as concerns swelled that soaring loan losses, tight credit and deteriorating economies would overwhelm lenders' efforts to cut costs and preserve capital. European bank shares tumbled to an 11-year low, and U.S. banks approached a 12-year low.

 

Goldman Sachs Group Inc set plans to cut 3,300 jobs, or 10 percent of its workforce, people familiar with the plan said, as the Wall Street stalwart copes with an expected downturn in trading and investment banking results.

 

In Europe, Credit Suisse Group confirmed details of a 1.3 billion Swiss franc ($1.1 billion) quarterly loss and said the rest of the year would be tough.

 

Swedish banks took a hit as Nordea Bank AB, Skandinaviska Enskilda Banken AB (SEB) and Swedbank AB reported lower operating profits, and Swedbank said it might take new capital from the Swedish savings banks that own it.

 

And in Canada, the government reinforced its banking sector with loan guarantees that will begin next month and continue at least until next May, mirroring large U.S. support programs. Finance Minister Jim Flaherty said the move would help ensure Canadian banks aren't at a competitive disadvantage.

 

SunTrust Banks Inc, the last major U.S. commercial bank to post third-quarter results, said profit fell 26 percent as loan losses more than tripled. It said core results were "soft" relative to its dividend payout. The bank said it may take $1.6 billion to $4.9 billion from U.S. Treasury Secretary Henry Paulson's $250 billion bank recapitalization plan. SunTrust shares were down 12.8 percent in afternoon trading.

 

In Europe, Spain's Banco Santander SA fell 4.8 percent and Banco Bilbao Vizcaya Argentaria SA fell 4 percent amid heightened worry about risk across Latin America, where both have large operations. That follows Argentina's decision to nationalize its private pension system.

 

Meanwhile, shares of Asia-focused Standard Chartered Bank fell 4.9 percent, and National Bank of Greece slid 12.6 percent. Credit Suisse fell 4.2 percent, SEB fell 9.5 percent, and Swedbank lost 11.4 percent.

 

Strains also appeared as the head of Germany's largest bank, Deutsche Bank AG's Josef Ackermann, said he would be ashamed if he had to tap that country's 500 billion euro ($643 billion) rescue package. Only regional lender BayernLB has said it will take the funds.