The long weekend in both Canada and the United States feels like a distant memory as we once again make history today. President Barack Obama today signs into law one of the largest pieces of legislation in U.S. history, a $787 billion stimulus package that combines massive tax breaks and government spending designed to resuscitate the U.S. economy (and hopefully the rest of the world will tag along).
The size of the new law and the speed that it moved through Congress, within weeks of Obama’s inauguration, place it among the most significant legislative accomplishments since President Franklin Roosevelt (after the great depression) overhauled the U.S. government in his first 100 days, historians and political analysts say.
Toronto’s main stock index fell on Friday, dragged down by financial services stocks on persistent worries about the health of the banking sector. The resource index dropped 3.7% the week after posting gains for two previous weeks.
The market is awaiting details on the U.S. bank rescue plan after an announcement by U.S. Treasury Secretary Timothy Geithner last Tuesday disappointed with its vagueness. The market was also awaiting any news from the meeting of the Group of Seven (G-7) finance ministers in Rome over the weekend (which had its own highlights – see below). Everyone wants to see some concrete action on the part of the U.S. Treasury and they want to see some concrete action on the part of other members of the G7.
The S&P/TSX composite index closed down 1.15% as the stock market continues to struggle day to day with the uncertainty surrounding the direction the economy is headed. In the United States, stocks also fell on Friday as persistent worries about banks eclipsed news that the government would announce a plan this week to prop up or put a floor on the housing sector by helping homeowners avoid foreclosures.
Initial enthusiasm over the prospect of relief on the housing front proved unsustainable after the White House cautioned against unreasonable expectations regarding the stimulus package and doubts lingered about how banks will cleanse their books of toxic assets.
The Dow on Friday had its lowest close since the bear market low of November 20, 2008. This capped a week when financial stocks were repeatedly testing new price lows as the government’s latest bank rescue plan failed to rally investors. The KBW Bank index fell 5.3% on the day and ended down 14% for the week.
The Dow Jones industrial average fell 1.04%, the Standard & Poor’s 500 Index dropped 1.00%, and the Nasdaq Composite Index dropped 0.48%.
On the weekend, Japan released some dismal economic data. The Q4 GDP dropped 12.7% on an annualized basis, Tokyo condo sales dropped 24.1%, Industrial Production dropped 20.8% year over year and Machine Tool orders dropped 84.1% year over year. In addition, the Japanese Finance Minister submitted his resignation after a G7 press conference incident (he was rumored to have been visibly intoxicated).
With Wall Street veering close to the November bear market lows, the market is likely to be very cautious this week as investors look for clarity on how the government plans to shore up banks, housing, auto industry and the economy.
Stocks in Europe and Asia dropped and U.S. futures slumped (by 2%) this morning on concern banks may face rating downgrades and further losses as the recession deepens. Gold climbed to a 7 month high and Treasuries gained as investors attempted to reduce risk once again.
Investors continue to be hit by a wave of disappointing corporate results and weakening economic data as the fallout from the financial crisis and frozen credit market continues to filter through to more and more economies.
The MSCI World Index decreased 1.2% this morning in London, extending its 2009 retreat to 11%. The gauge of 23 developed markets has dropped for 6 straight days.
Today we will hear more about General Motors who are faced with a deadline today to submit a survival plan to the U.S. government. GM is seeking concessions from the UAW (their union) and debt holders as required under the terms of its $13.4 billion bailout. Without a framework deal on how to cut GM’s crippling debt load, analysts have said the Obama administration would confront a political and economic dilemma in the coming days.
A bankruptcy for GM could cost jobs and topple parts suppliers and dealers just as the White House is focused on trying to pull the economy from the brink of a deeper recession. An expanded aid package for GM and Chrysler could cost taxpayers billions of dollars more and risk a stronger bailout backlash by voters (who are also customers – this is a key considerations and dilemma) worried by the mounting costs.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
