U.S. stocks appreciated in value on Friday as investors bet that a steep drop in oil prices will boost consumer spending, lifting retail stocks. This offset government data showing 500,000 jobs were lost in November in the United States with additional job losses in Canada.
Shares of discounter Wal-Mart and iPod maker Apple went up 6% and 3% respectively while oil slid below $41 a barrel to its lowest level in nearly 4 years. This means more discretionary spending for consumers, who are starting to feel better because they don’t have to spend $150 every time they want to fill up their gas tanks.
The job data is the weakest in 34 years (in the United States) while the unemployment rate rose to 6.7%, the highest reading since 1993.
The Dow Jones industrial average gained 3.09%, the Standard & Poor’s 500 Index climbed 3.65%, the Nasdaq Composite Index rose 4.41% while the TSX was held back by a drop in energy prices and materials. Oil has snapped a 6 day drop with crude for January delivery climbing as much as 7.3% in electronic trading this morning.
Investors continued to worry about the fate of the U.S. auto industry, with executives of the Big 3 car makers, including General Motors, back on Capitol Hill to plead again for a $34 billion government rescue. U.S. lawmakers are working to reach an agreement today on automaker aid. Senate Banking Committee Chairman Christopher Dodd predicted a plan would have the votes to pass. GM rose 16 % in early U.S. trading this morning.
“None of us want to wake up on January 1st and discover we don’t have an industry to save,” Dodd, a Connecticut Democrat, said yesterday on CBS’s “Face the Nation.” Republican Barney Frank warned that it would be an “unmitigated disaster” if a big U.S. automaker is allowed to collapse.
Interesting fact!
Stocks have declined in value so far that 2,267 companies around the globe have an equity value less than cash in the bank. That is 8 times as many as at the end of the last bear market. Bank of New York Mellon and Namyang Dairy Products (for example) hold more cash than the value of their stock and debt. Companies in the MSCI World Index trade for an average 1.17 times their net assets, the lowest since at least 1995, and 39% sell at a discount to shareholder equity, data compiled by Bloomberg shows.
BNY Mellon is among 49 companies with a market capitalization greater than $1 billion that hold more cash than the value of their stock and debt, out of 2,267 overall, data compiled by Bloomberg show (in short, typically, small cap companies are trading at less than cash). Just 276 companies had cash that exceeded the value of their stock and debt when the S&P 500 bottomed in 2002. Those shares posted a median total return of 115% over the next 12 months, according to data compiled by Bloomberg. That’s more than triple the return for the S&P 500 during the same time frame. In short, it is cheaper to buy than to build – see the chart below. Things are cheap but stocks expect things to be different in the future than in the past (need to take into account the higher cost of capital, more regulation and 20% of all bank stock being owned by the U.S. Government at this time).
Stocks in Europe and Asia rallied this morning, led by commodity producers, and U.S. index futures rose this morning after President elect Barack Obama pledged the largest spending on infrastructure since the 1950s to revive the economy.
Regards,
Wilfred Vos Bcs, CFP, FMA, FCSI, CIM, CFA, MBA, DMS, CBV
SVP & Partner
