Some disappointing reports related to two main bond insurers lead to a late day sell off
It was quite a drama at the US Market today, Wednesday, 30 January, 2008. But all of the drama was mainly concentrated in the final couple of hours of trading. Federal Reserve decided to cut both the fed funds and discount rates by 50 basis points and the same was announced around 2.15 pm E.T. Stocks rallied and Dow was up by more than 200 points at one time. But some bond related disappointing news hit the market almost at the same time and stocks fizzled at the end.
The Dow Jones industrial Average ended the day with a loss of 37.47 points at 12,442.83. The Nasdaq Composite Index, finished lower by 9.06 points at 2,349. S&P 500 finished lower by 6.5 points at 1,355.8. Seventeen out of thirty Dow stocks ended in the red today. Boeing, Altria and Exxon Mobil were a couple of main Dow winners. AIG, Merck, Coco Cola, AT&T and Johnson & Johnson were the main Dow laggards today.
The Federal Open Market Committee decided to cut the fed funds rate 50 basis points to 3% and the discount rate 50 basis points to 3.50%. Last week, Federal Open Market Committee (FOMC) approved a 75 basis point intermeeting cut in the fed funds rate to 3.50%. The Board of Governors also approved a 75 basis point cut in the discount rate to 4%. That was Fed’s first move this year to keep recession at a bay.
The central bank said today that the credit markets in US remain under "considerable stress." Fed's statement also added that credit has tightened further for some businesses and households. The housing slump is getting worse, and there's new weakness in some labor markets.
Boeing beat expectations but Merck incurs losses
Market was giving kudos to Fed’s decision but some bond reports played the spoilt sport during that time. It was reported in the mean time that one of the two major bond insurers was going to be downgraded by a credit rating agency. It was also reported that Ambac and MBIA, two bond insurers will lose more money than they are currently predicting from guarantees sold on complex mortgage-related securities.
This started a selling pressure in the market led by the financials sector. Finally eight of the ten economic sectors ended the day in negative territory. Technology and Industrials posted the only gains.
On the earnings front, Boeing beat Wall Street expectations while Merck failed to do so. Merck reported a fourth quarter loss.
Among economic reports, the ADP employment report found the private sector adding 130,000 jobs this month, nearly twice the 70,000 forecast.
Indian ADRs ended in red today. Rediff.com, Patni Computers and VSNl were the main losers. HDFC Bank and ICICI Bank shed 1.7% and 1.1% respectively.
Crude prices ended higher for the fifth consecutive day
Crude prices ended higher for the fifth consecutive day today. Another spate of interest rate cut by Federal Reserve pushed crude prices to two week high. A lower interest rate has chances of helping the US economy warding off recession and thus boosts energy demand. Crude-oil futures for light sweet crude for February delivery today closed at $92.33/barrel (higher by $0.69/barrel or 0.8%) on the New York Mercantile Exchange. Prices are 62% higher than a year ago. The contract traded between the range of $92.71 and $91.05.
EIA also reported the weekly inventory report today. U.S. crude inventories rose for a third week, up 3.6 million barrels to 293 million barrels in the week ended 25 January. Crude imports averaged about 10.1 million barrels per day last week, down 100,000 barrels per day from the previous week.
Volume hit 1.8 billion shares on the New York Stock Exchange, and declining stocks overtook those advancing 9 to 7. On the Nasdaq, nearly 2.6 billion shares were exchanged, and advancers 3 to 2.
Earnings reports and economic reports will dominate tomorrow’s momentum. December's Personal Income and Employment Cost figures are due before the open followed by the weekly Jobless Claims report.