The TSX/S&P Composite Index Toronto’s main stock index dropped yesterday to its lowest level in 7 weeks as resource issues slumped on falling oil and base metal prices (excluding gold) and as concerns once again grew over the global financial crisis.
The financial services sector led the TSX lower closing down 6.4%, the steepest 1 day drop since the beginning of December. Concerns about the financial sector emerged after a report from Moody’s Investors Service warned about growing risks to European banks as the recession deepens. The energy sector also fell 5% as the price of oil dropped 7% to below $35 a barrel on demand concerns. The index closed down 3.45% with 9 out of 10 sectors lower. At one point, the index touched its lowest level since December 29th.
Grim U.S. housing and factory data helped to dampen the mood in North American equity markets, while market sentiment was also hit by data that showed Japan’s economy sank deeper into recession in the 4th quarter (see my comments from yesterday for more information).
In the United States, financial stocks sank to a 14-year low pulling the S&P Financial index down 8% yesterday. We are retesting the November 2008 lows as reality sets in that this recovery will take a long time and that things may get worse in the short-term as sentiment continues to deteriorate. U.S. banks and residential real estate prices have continued to be “beaten down” by the failure of efforts to save the financial system and put a floor on real estate prices.
The Dow Jones industrial average fell 3.79%, the Standard & Poor’s 500 Index fell 4.56% and the Nasdaq Composite Index fell 4.15%. In short, Wall Street’s slide pulled the S&P 500 and Dow to their lowest levels since November 20, when stocks hit 11-year lows. Just before the end of the session, the Dow briefly broke through its bear market closing low that was hit on November 20. The day’s losses brought the Dow down 13.9% since the start of the year, while the S&P 500 is down 12.6% and the Nasdaq has fallen 6.7% - Canada is looking pretty good.
The market was also under pressure ahead of the yesterday’s deadline for two of Detroit’s Big Three automakers to submit restructuring plans. General Motors asked the U.S. for as much as $16.6 billion in new loans, more than doubling the bailout to date, and said it needs some of the cash next month to survive as it sheds brands and cuts 47,000 more jobs worldwide. Chrysler said it is seeking $5 billion more from the government and will shed 3,000 more positions (on top of the 32K already cut).
The automakers met a deadline yesterday to report progress in revamping operations with $17.4 billion in loans granted so far. Now, they must show the U.S. by March 31 that they can become profitable in order to keep the money. They got a boost when the United Auto Workers (UAW) said it has reached tentative agreements to help trim labor expenses. GM’s retrenchment or restructuring includes closing 5 more U.S. plants by 2012 and deciding whether to sell or shut the Hummer unit by the end of March. Production of Saturn cars would stop in 2011, if the brand hasn’t been sold.
Both automakers offered more-pessimistic outlooks for 2009 U.S. auto sales, with GM saying the auto market could drop to 9.5 million cars. Last year’s total was 13.2 million, and the average this decade before 2008 was 16.1 million. Both companies rebuffed the idea of bankruptcy filings. GM said it examined three bankruptcy scenarios, with price tags of as much as $100 billion, and that all were less favorable options than a rescue. “All research indicates bankruptcy would have a dramatic impact on GM sales,” GM said in its 117-page plan, citing a study that concluded 80% of consumers would not buy a car from a bankrupt company. “A restructuring process outside of bankruptcy is highly preferable,” GM’s report said.
Bankruptcy “would create unbearable stress not only for our suppliers, but also the suppliers of other automakers,” Chrysler Chief Executive Officer Robert Nardelli said in a briefing with reporters. “It would have a cataclysmic effect on the entire auto industry.” Liquidating the automaker might cost 2 million to 3 million jobs, according to Chrysler’s plan.
Obama will today outline an estimated $50 billion plan to stem a surge in home foreclosures that will subsidize cuts in mortgage payments for millions of struggling borrowers. Obama, in Phoenix on the 2nd stop of a 2 day road trip in the U.S. West, will announce details at 10:15 a.m. local time as he campaigns for his economic recovery package, deputy White House spokesman Jen Psaki said.
The market is very news sensitive and wants to hear concrete plans and it looks like Obama understood that and will now give more details
This morning U.S. stock futures gained, indicating the Standard & Poor’s 500 Index may rebound from a 3 month low on speculation President Barack Obama’s plan to stem home foreclosures will help revive the economy and as investors looked to snap up beaten down shares after yesterdays slide.
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
