Wall Street slips on recession worry

NEW YORK - Stocks fell on Tuesday as fears that the global economy may not avert recession slammed shares of technology and consumer companies, eclipsing a government rescue plan for banks.

A day after the Dow leaped 936.42 points in its biggest one-day point gain ever, investors looked past the US pledge to pour US$250 billion into major banks and instead focused on the dismal outlook for earnings and the economy.

A disappointing outlook from PepsiCo further fuelled those worries, especially given that soft drink- and snack-makers are usually seen as holding up in economic hard times. PepsiCo's shares had their worst day since the 1987 stock market crash.

The Nasdaq underperformed throughout the day. Intel was among the top drags on the Nasdaq as investors worried about the chipmaker's quarterly results. Intel lost 6.2 per cent to US$15.93 on Nasdaq, while an index of semiconductor stocks slid 5 per cent.

But after the closing bell, Intel's shares shot up more than 4 per cent after its earnings beat analyst expectations.

During the regular session, financial shares rose after the US Treasury's latest step to stabilise the financial system in hopes of averting further damage to the economy. Citigroup jumped 18.2 per cent and Bank of America climbed 16.4 per cent.

The Dow Jones industrial average was down 76.62 points, or 0.82 per cent, at 9,310.99. The Standard & Poor's 500 Index was down 5.34 points, or 0.53 per cent, at 998.01. The Nasdaq Composite Index was down 65.24 points, or 3.54 per cent, at 1,779.01.

Source: Singapore Business Times - 15 Oct 2008

Wall St soars 11% on bank rescue and Morgan deal

NEW YORK - Wall Street roared back from its worst week ever with one of its best single days ever on Monday, as governments pledged to pour cash into struggling banks to restore confidence in a rocky global financial system.

Bargain-hunting investors scoured the wreckage from eight days of losses that had whacked more than 20 per cent off the value of the benchmark S&P 500. Health care, utility and energy stocks rose the most in what was the first day of gains this month for the Dow and S&P 500.

Morgan Stanley drove the rally in financial shares, soaring 87 per cent, after Mitsubishi UFJ Financial Group completed its US$9 billion investment in the US bank as US government support helped nail down a critical deal many investors had feared could fall apart. Wachovia climbed 13.6 per cent after the Federal Reserve approved the US$12.46 billion takeover of the US bank by Wells Fargo & Co.

'The crucial issue for the market has been a lack of confidence and the most recent efforts to ease the credit crunch by governments and central banks have been very positive in terms of building confidence,' said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

Led by Britain, European governments agreed to multibillion-dollar guarantees for the banking system in moves that may become a crucial test of investor faith in government's ability to reverse the downward spiral.

The US Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank also said they would lend commercial banks as much US dollar liquidity as they needed to ease clogged interbank lending rates. The S&P financial index shot up 10.23 per cent.

The Dow Jones industrial average rose 936.42 points, or 11.08 per cent, to 9,387.61, its biggest one-day point gain ever and its biggest percentage gain since March 15, 1933.

The Standard & Poor's 500 Index also notched its best single-day point gain, up 104.13 points, or 11.58 per cent, to 1,003.35. The Nasdaq Composite Index was up 194.74 points, or 11.81 per cent, at 1,844.25, its biggest one-day point gain since January 2001.

Source: Singapore Business Times - 14 Oct 2008

Market ends mostly lower after wild session

NEW YORK - The Dow and the S&P 500 dropped for an eighth session on Friday, as a dramatic late-day comeback stalled out to cap the worst week ever for the S&P amid more anxiety about the condition of credit markets and the threat of a global recession.

Even in a market whose recent hallmark has been volatility, Friday's action was exceptional. The Dow lurched back and forth in a 1,000-point range and a late pop in technology shares helped the Nasdaq eke out its first gain of the month. Volume on the New York Stock Exchange was more than double the average of 2008 so far.

But bets that finance chiefs of the world's major economies will take action over the weekend were not enough to keep the Dow and the S&P 500 out of the red. Finance leaders from the world's rich nations pledged a coordinated response to the credit crisis, but stopped short of backing a British plan to guarantee lending between banks.

Shares of Morgan Stanley and Goldman Sachs tumbled after credit ratings service Moody's said it might cut their ratings, reviving concerns about the viability of their banking models.

Energy companies weighed on the market as oil prices fell 10 percent to a 13-month low below $78 a barrel on fear a faltering global economy will cut demand for crude.

The Dow Jones industrial average fell 128.00 points, or 1.49 per cent, to 8,451.19, while the Standard & Poor's 500 Index dropped 10.70 points, or 1.18 per cent, to 899.22. The Nasdaq Composite Index, meanwhile, edged up 4.39 points, or 0.27 per cent, to 1,649.51.

The Chicago Board Options Exchange Volatility Index, Wall Street's fear gauge, hit record highs again on Friday, reflecting unprecedented investor anxiety. The VIX surged 20.4 per cent to a record intraday high at 76.94. By the close, it had given up some gains, but was still up 9.4 per cent at 69.95.

Traders cited margin calls and forced liquidations as a key contributor to the week's sell-off in stocks.

Source: Singapore Business Times - 11 Oct 2008

Credit worries hammer Wall Street

NEW YORK - Stocks plummeted for a seventh straight session on Thursday as investors bet recent moves by authorities worldwide to thaw frozen credit markets would not be enough to avert a global recession.

An avalanche of selling at the close left the Dow below 8,600 for the first time since May 2003. The Nasdaq and the S&P 500 each also fell to levels not seen in more than five years.

Bank and insurance stocks got hammered again, as the previous day's coordinated global interest-rate cuts and myriad other official actions to unfreeze money markets did little to boost confidence in the financial sector. Some traders said the lifting of the ban on bets that financial stocks will drop may have contributed to the sell-off.

Credit markets remained clogged. The interbank cost of borrowing dollars for any period beyond overnight rocketed - three month dollar Libor hit its highest this year.

Shares of General Motors tumbled 31.1 per cent to its lowest level since 1950 as concerns mounted that an industry decline that started in the United States was spreading and a leading forecaster warned global auto demand could 'collapse' in 2009. At the close, GM was at $4.76.

Exxon Mobil and Chevron led the Dow lower as the price of oil dropped below US$87 a barrel on concerns a global slowdown would slam demand for energy.

The Dow Jones industrial average dropped 678.91 points, or 7.33 per cent, to 8,579.19, while the Standard & Poor's 500 Index plummeted 75.02 points, or 7.62 per cent, to 909.92. The Nasdaq Composite Index sank 95.21 points, or 5.47 per cent, to 1,645.12.

The steep declines came on the anniversary of the Dow's all-time closing high above 14,000. Thursday's steep sell-off capped the Dow and the S&P's biggest seven-day decline since the October 1987 market crash, and the Nasdaq's worst seven-day decline since December 2000.

Source: Singapore Business Times - 10 Oct 2008

Another good article by R Sivanithy.....

SGX has the right approach to short-selling

NEWS that the ban on naked short-selling in the US stock market will be lifted with effect from yesterday will surely be greeted with relief by many quarters of the financial community, and the move should, hopefully, be followed by all other markets which were too overly eager to follow the United States' example over a fortnight ago.

This is because the Sept 19 ban was ill-conceived in the first place, serving little purpose other than to tell the market that regulators had run out of ideas of how to prop up sagging markets and were in panic mode.

Instead of having the desired effect of halting the bleeding, it ended up robbing markets of liquidity, efficient price discovery and possibly even support that the ban was intended to achieve.

Take for example the fate of Wall Street. The ban kicked in when the Dow Jones Industrial Average stood at 11,388 and the S&P 500 was at 1,255. After Tuesday's collapse and after 11 trading days with the ban in place, the Dow was at 9,447 for a loss of 1,941 points or 17 per cent, while the S&P at 996 has suffered a loss of 259 points or 20 per cent.

The story is the same elsewhere - the UK market, for example, has lost more than 15 per cent since banning shorting while similar losses have been encountered across Europe.

Here's a thought: Could banning shorting actually have worsened the downside?

Possibly - observers have noted a spike-up in volume in futures markets worldwide since Sept 19 because short-sellers, unable to trade in the underlying markets, probably turned their energies to the futures markets instead. And, as most market watchers know, steep falls in futures contracts could, in turn, have placed undue pressure on the spot markets, thus driving prices in the latter down.

Whatever the case, it is illogical to temporarily interfere with the workings in any market or, as some have described it, to shift the goalposts after the game has started, especially if there is an associated derivatives market.

Both depend on each other to properly reflect prevailing sentiment and expectations, so to artificially obstruct arbitrageurs and free trading in one and not the other introduces undue distortions that lead to sub-optimal investment decisions.

To be fair, the selling of something not originally owned has always raised ethical issues, while the sight of crashing prices stirs many negative emotions, often leading to fingers being pointed at short-sellers and a clamour for some sort of official intervention.

Faced with tremendous public pressure to stem the bleeding, it is perhaps understandable - and possibly forgivable - for regulators to cave in and impose poorly thought out measures as was the case a fortnight ago.

Furthermore, US officialdom often finds itself burdened with the expectations not just of its own market, but also the world. For this reason it has a whole host of circuit-breakers in place which are not found in most other markets, measures aimed at preventing a full-scale crash that if left unchecked could wreak havoc around the globe.

However, as many have pointed out, short-sellers did not cause the sub-prime meltdown, nor were they in any way responsible for the inflation of the massive US housing bubble between 2001-2007 and the simultaneous enormous expansion of credit that lay behind it. (The real culprit may have been previous Federal Reserve chairman Alan Greenspan and the Bush administration, but we'll leave the blame game aside for now).

Furthermore, academic studies have shown that short-sellers do not earn abnormal profits by artificially driving prices down and instead provide liquidity and stability by buying into down markets.

So there is no real evidence that short-selling causes, aggravates or leads to stock market crashes; in fact, under rigorous scrutiny, all accusations levelled at the activity can be found to be mainly anecdotal.

Fortunately for local investors, officials here recognise that the less interference there is with the market mechanism, the better. Moreover, all the naked short-selling data provided by the Singapore Exchange (SGX) in the past week or so clearly shows that naked short-selling is not a major factor and SGX has sensibly adopted a disclosure-based approach to addressing short-selling concerns. If only other regulators were similarly predisposed, the selloff of the past fortnight might well have been less severe.

Stocks drop for 6th session on recession fear

NEW YORK - Stocks fell for a sixth straight session on Wednesday, as a coordinated worldwide cut in interest rates failed to alleviate fears about a global recession.

It was a session of wild swings, with no clear direction determined until the final minutes. Wall Street's favourite measure of investor fear, the Chicago Board Options Exchange Volatility Index, hit a record intraday high.

In the last hour of trading, US Treasury Secretary Henry Paulson warned that the turmoil 'will not end quickly.' He also said it may be several weeks before the Treasury Department begins buying unwanted and illiquid assets from financial firms under the US$700 billion bailout programme that Congress approved last week and that is now US law.

With Wednesday's decline, the blue-chip Dow Jones industrial average has lost 14.7 per cent in the last six days - its worst such run since after the Sept 11 attacks in 2001. In terms of points, the Dow has dropped 1,594.55 points over the last six days -- its worst six-day streak ever.

The Nasdaq has lost 16.81 per cent in the last six days - its worst six-day percentage loss since April 2001.The Nasdaq has dropped 351.55 points in the last six days - - its worst six-day point loss since December 2000.

The Dow Jones industrial average fell 189.01 points, or 2.00 per cent, to 9,258.10, while the Standard & Poor's 500 Index dropped 11.29 points, or 1.13 per cent, to 984.94. The Nasdaq Composite Index was down 14.55 points, or 0.83 per cent, at 1,740.33.

Treasury Secretary Henry Paulson urged intensified global cooperation to stabilise financial markets and said countries must be careful not to harm one another while they guard their own interests. Mr Paulson recited the numerous measures that members of the G7 and others have taken to try to halt plunging stock prices and rebuild confidence, but said more was needed.

Source: Singapore Business Times - 09 Oct 2008

Wall Street sinks for fifth day as credit worries mount

NEW YORK - Stocks tumbled for a fifth straight session on Tuesday, capping the Dow's biggest five-day point loss ever, as fears mounted that the spiraling credit crisis would drag the economy into a deep recession.

Federal Reserve Chairman Ben Bernanke did little to reassure markets when he cautioned that downside risks to economic growth have worsened, though he did signal a readiness to lower interest rates. An earlier move by the Federal Reserve to unclog the commercial paper market, which companies use to fund their day-to-day operations, gave the stock market only a fleeting boost.

The financial sector was the biggest drag on the market, with the S&P financial sub-index dropping to its lowest level in more than a decade.

Bank of America skidded 26.2 per cent the day after it said it would cut its dividend and raise US$10 billion to help staunch rising loan losses.

The Dow Jones industrial average fell 508.39 points, or 5.11 per cent, to 9,447.11. The blue-chip Dow average has lost more than 1,400 points over the past five sessions, or nearly 13 per cent of its value, according to Reuters data.

The Standard & Poor's 500 Index dropped 60.66 points, or 5.74 per cent, to 996.23 - the first time the benchmark index has closed below the 1,000 level in more than five years. The drop was the S&P 500's biggest five-day percentage decline since the 1987 crash.

The Nasdaq Composite Index slid 108.08 points, or 5.80 per cent, to 1,754.88.

The losses came a day after a steep global equity market sell-off and traders said there was some disappointment that central banks had not orchestrated a coordinated interest-rate cut to calm financial markets.

Source: Singapore Business Times - 08 Oct 2008

Credit, recession fears slam Wall Street

NEW YORK - Stocks slid for a fourth straight day on Monday, leaving the Dow below 10,000 for the first time in four years, on fears the global economy was hurtling into recession despite government efforts to contain the fast-spreading financial crisis.

The steep declines came in the first full session since the US Congress approved a US$700 billion bailout of the financial industry, as lending came to a virtual halt and investors shifted their focus to the crumbling outlook for the economy and profits.

But the market cut almost half its losses in the final hour of the session, as traders speculated the sell-off may trigger a coordinated global response to thaw credit markets. The S&P financial sector sub-index, which had earlier been down more than 8 percent, closed down 4.2 per cent.

The energy sector skidded as the price of oil dropped to an 8-month low below US$88 a barrel on expectations that a recession will further hamper global fuel demand.

Wall Street's drop was part of a breakneck global sell-off, which led to temporary trading halts in Russia, Brazil and Peru. The emergency rescue of two big European banks and a move by several European governments to guarantee bank deposits intensified fears that the credit crisis can not be contained.

The Dow Jones industrial average fell 369.88 points, or 3.58 per cent, to 9,955.50. It was the first time the Dow closed below 10,000 since October 2004.

The Standard & Poor's 500 Index skidded 42.34 points, or 3.85 per cent, to 1,056.89, while the Nasdaq Composite Index dropped 84.43 points, or 4.34 per cent, to 1,862.96.

For the year to date, the Dow is down about 25 per cent, the S&P 500 is down 28 per cent and the Nasdaq is down 29.8 per cent.

Source: Singapore Business Times - 07 Oct 2008