Insights

Weak Jobs Number Puts Market on the Edge, Obama’s Bank Plan Pushes it Over

Yesterday, the Dow Jones Industrial Average dropped 208 points before recovering to post a 122 point loss on the day.  The S&P 500 also experienced the same deeper drop and recovery into the close.  Looking at the charts for the Dow and the S&P 500 shows that where the two market Indexes closed yesterday, was right on the support of short term uptrend lines that have been in effect since December 17th of last year.  All the market needed to drop was a little push…

This morning before the open, the Jobless Claims came in weaker than expected by 42,000 jobs (482K vs. 440K), and the market dropped a bit off the open.  The 10 a.m. release of a weak Philly Fed survey and a brief released by the White House with details about new banking regulations President Obama had a press conference scheduled for, was enough to push the market over the edge.  In 17 minutes the DJIA dropped 105 points as selling, and possibly the cascading of protective sell stops, took the market on a one way trip lower.  An hour later Obama was on TV, and as he announced his plans a second wave of selling drove the market to its day low at down 229 points.

The Dow Jones Industrial Average lost 213.27 points (-2.01%, 10,389.88) on the day making the drop of the last two days total 335 points, which is the biggest two day loss since June of last year.  The S&P 500 dropped 21.56 points (-1.89%, 1,116.48) and the Nasdaq 100 was off 17.38 points (-0.93%, 1,850.57)

There seems to be a difference of opinion about how Goldman Sachs Group, Inc. (NYSE: GS) will fare under the newly proposed legislation.  Dick Bove of Rochdale Securities LLC says you should buy Goldman on the dip, but Michael Hecht at JMP Secutities and Matt Albrecht at Standard and Poor’s disagree, saying the bank will get hit harder than their brethren.  Goldman announced earnings this morning before the opening bell and crushed the analysts estimates of $5.20 a share by a full $3.00 ($8.20).  With a weak and slowly trending lower market, Goldman stock was off about a dollar when the first market slide hit.  This first slide only took the stock down three more dollars and when Obama got on TV, Goldman was trading at about $164.  Fifteen minutes later, as Obama gave details of his plan, 7 points evaporated off of Goldman’s stock as it traded as low as $156.77.  Calls to Goldman and other banks all got pretty much the same answer of “we don’t really know until we see all the details” which sounds to me like; “It is only proposed legislation and let’s just see what they get signed into law after we pay our lobbyists a small fortune to go talk to some politicians in D.C.”  Goldman stock rebounded to close the day down $6.92 (-4.12%, $160.87).

The newly proposed regulation has at its heart a ban on commercial banks engaging in proprietary trading.  Obama seems to believe that this type of law would be a safeguard against a future financial meltdown similar to that which occurred over the last 18 months.  Never mind the fact that proprietary trading did not have much to do with financial crisis, or that American International Group, Inc. (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) did not engage in any proprietary trading at all, were at the epicenter of the crisis and together cost the TARP well over $200 billion.  Never mind the fact that Goldman and every other large bank that did engage in proprietary trading have paid back, with interest, every dime the Government loaned them.  The question is, is this type of legislation motivated by actually trying to regulate and make the markets safer, or is it politically expedient to attack the big banks to score a victory after the election in Massachusetts earlier in the week?

Google Inc. (NSDQ: GOOG) reported after the close today, with some of the bigger market players anticipating a large beat.  The analysts estimate for earnings was $6.50 a share and one player I spoke with cited the fact that Google’s numbers were never taken lower during the past year, and that, with the economic pick up the reported earnings beat should be sizable.  In today’s down market, Google closed up $2.57 at $582.57.  The search engine giant reported earnings of $6.79 a share, beating the $6.50, but only by 4.4%.  The stock immediately dropped in after hours trading as it seems others anticipated a larger earnings beat and started to sell.  The stock is currently down 25 points in the after market at 557 (5:00 p.m.).  This pattern seems to be keeping form with selling the tech earnings after the beat expectations (see Intel and IBM earlier in the week).

New York spot gold dropped $17.80 to $1,093.50 and Nymex crude lost $1.92 a barrel to $75.82 as just about everything got hit today.

Selected earnings for Friday:

BBT 0.21 before the open, EXC 0.85, GE 0.26 bmo, HOG -0.32 bmo, JCI 0.29, KMB 1.25, MCD 1.02 bmo, SLB 0.64 bmo, STI -0.75 bmo.