Market Update
10/10/08 - 15:30
Peter Martin - Director, Client Education and Training, IG Index
'I think traders are just trying to get through the day,' were the words of Tim Hughes, head of Sales Trading at IG Group, ahead of the final trading session of what has been a devastating week for the US markets, perfectly summing up the mood of a day in which there seems to have been simply no good news.
General Electric, one of the largest companies in America, reported just before the bell, and though by no means disastrous, its figures were hardly encouraging: profit declined for a third straight quarter as earnings were hit at its finance arm. Profit from continuing operations fell 12%, or 45 cents per share, compared with 50 cents a share a year earlier.
The numbers were broadly in line with analysts' estimates, and shortly after the opening, General Electric shares were not faring too badly, just off a touch at $18.99.
'General Electric coming in-line should give the market some confidence and focus again on fundamentals,' said Tim Ghriskey, Chief Investment Officer at Solaris Asset Management in New York. [1]
Of course, you should bear in mind that General Electric had recently cut its own forecast.
The Dow Jones endured an extremely tough start, slipping as low as 7882.51 in early trading (representing a drop of 8%), hurt by the news that Goldman Sachs and Morgan Stanley had both had their credit ratings cut by Moody's.
Goldman Sachs dropped 16% to $84.69 and Morgan Stanley fell 27% to $9.05.
These are huge numbers, especially considering they follow huge losses not just yesterday, but seven days of drops before that as well.
'The panic and the fear we're seeing is mind blowing. It looks like the market is pricing in a depression,' said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. 'There's a lack of confidence in not only the global economy but in the leaders as well.' [2]
Macy's, America's second-largest department store, cut its annual profit forecast, blaming the weak economy and consumer confidence. It said that earnings per share may fall as low as $1.30 to $1.50, compared with its own earlier forecasts of $1.70 to $1.85. Macy's share price dropped 3.2% to $11.09 by 3.20pm (London time).
The Dow did recover some of its losses as the afternoon wore on, however, and by 3.30pm was down just 93 points or 1.1% at 8493. The FTSE 100 had also bounced well off its lows by this point, reaching 4079, which is still a drop of 232 points or 5.4% (the FTSE has dallied below 3900 a few times today).
In the context of the plunging levels of stock indices around the globe this week, the Dow clawing back a few hundred points looks far from being a convincing fight back.
We have seen the cost of borrowing in dollars and sterling in London rise for a fourth day in a row today: three-month LIBOR, the London Interbank Offered Rate (the rate at which banks charge each other for loans) climbed to 4.82% for dollars and 6.29% for sterling. On that evidence, as we head into the weekend and a welcome break from the market turmoil, there is no sign of a thaw in the credit freeze.
[1] Source: Bloomberg News (10 Oct 2008)
[2] Source: Reuters News (10 Oct 2008)
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