The S&P/TSX Composite index fell yesterday by 0.91%, dragged down by the information technology sector as shares of Research In Motion (RIM), an index heavyweight, dropped by about 15% on a profit warning. The BlackBerry (or as some like to say Crackberry as avid or addicted users use the device 24/7) maker forecasted its quarterly profit would come in at the “low end of expectations” because businesses are not buying its latest smartphone upgrades in the economic downturn.
There was strength in the materials sector, up 3.6%, which benefited from a rally in the gold price but the slide in technology stocks, down 5.4%, brought the index into the red.
The energy sector also fell 1.7% as the price of oil slid 4.3% amid demand concerns to settle at $35.94 a barrel. U.S. oil prices fell 4.3% after the International Energy Agency (IEA) said global energy demand in 2009 would post its biggest decline since 1982 under the weight of the economic crisis. A U.S. government report showed a larger than expected increase in nationwide crude inventories or an increase in supply, which is the 7th consecutive weekly increase. IEA said in its monthly report that global oil demand would fall by 980,000 barrels per day (bpd), a decline that would exceed its previous forecast for a 500,000 bpd contraction.
Oil prices have dropped about $110 a barrel since last July’s peak due to the global economic slowdown and its impact on consumer and business fuel consumption, raising alarms for OPEC member nations that have agreed to record output cuts to counter the weakness. Leading oil exporter and OPEC member Saudi Arabia said current oil prices were unjustified and unsustainable. “If today’s low prices continue long enough, they will sow the seeds for future price spikes and volatility,” Saudi Oil Minister Ali al-Naimi said. Data from China’s General Administration of Customs showed January crude oil imports to the world’s 2nd largest energy consumer had fallen by 8% to the lowest level for 15 months.
It appears that the stock market is once again very nervous although, the Chicago Board of Options Exchange (CBOE) VIX index has not really spiked like it did last October and November and it still trades around 50 versus the previous high of 80 (it has to trade between 0 and 100).
In the U.S., bank shares traded higher as bargain hunters (we will have to wait and see if they are a bargain or not) moved in after Tuesday’s 14% sell-off on hopes the stimulus package will reinvigorate the economy – the index was up 6%. The Dow Jones industrial average gained 0.64%, the Standard & Poor’s 500 Index 0.80% and the Nasdaq Composite Index gained 0.38%.
In the United States lawmakers reached a compromise deal on a $789 billion stimulus package that is seen as crucial to reviving the recession hit economy. Senate majority leader Harry Reid said “differences have been bridged between the two versions of the package that had been passed by the House of Representatives and the Senate and that votes on the final bill could come as early as today. Negotiators in the House and Senate agreed to scale back earlier proposals for the package. Every economic indicator and every passing day reminds us of how we must act, and act robustly and quickly,” said Senate Majority Leader Harry Reid, announcing the deal. “Like any negotiation, this involved give and take.” Negotiators had worked around the clock to meld an $820 billion House bill with an $838 billion Senate measure, trying to meet a deadline set by Obama to produce a plan that he wants to sign into law by Monday. Without a stimulus bill, Obama has said the country faces a possible economic “catastrophe.”
U.S. Treasury Secretary Timothy Geithner said he would inform Congress as soon as possible if more taxpayer money were needed to salvage the banking sector as part of the effort to reinvigorate the economy. Testifying for a 2nd day on a financial stability plan he sketched out on Tuesday, Geithner said bold action now to halt the deep financial crisis would prove less costly to taxpayers over the long haul than acting too timidly. “If we are not forceful now, ultimately it will be harder for us to get our fiscal position back into a sustainable position and all those challenges will be more difficult to solve,” Geithner told the Senate Budget Committee. Committee Chairman Kent Conrad, Democrat of North Dakota, said it was incumbent on Geithner to tell Congress soon if more money, beyond the already approved $700 billion financial rescue fund, was need. “If we believe that we think there’s a compelling case for additional resources and authority, we will come to you and lay that out as quickly as we can,” he said. “We’re going to move forward very quickly to come out with detailed design elements on these proposals I outlined on Tuesday,” Geithner said, adding that should take several weeks.
Geithner’s bank rescue plan was criticized for lacking detail and clarity, particularly with respect to how a public and private partnership would buy up bad assets, and U.S. stocks plunged on Tuesday when he unveiled it (it was a rather sad state of affairs). In short, banks need to renew lending, which, in turn, should help ease a U.S. recession that is likely to be the longest since the Great Depression (this recession is already longer than the typical recession). “I completely understand the desire for details and commitments, but we’re going to do this carefully, consult carefully so we don’t put ourselves in the position again where we’re laying out details ahead of the care and substance necessary to get it right,” he said.
Stock markets will face some additional headwinds this morning as corporate earnings season continues and many companies continue to report bleak earnings and economic outlooks. In addition, next week GM and Chrysler are scheduled to come back to Capitol Hill to present their restructuring plan. Stocks may still be cheap but you need to have the economy stabilize and move forward again in order to see a meaningful and sustainable up tick in stock prices. All eyes back on the stimulus plan.
