DIA -.61%, SPY -.66%, QQQQ -1.06%
The markets started badly, but a late rally stemmed some of the losses. Despite the news that Federated is buying Mays department stores, the news of the Lebanese government's withdrawal from power worried traders because of possible instability in an already tense region. In addition, there was some speculation that last week's South Korean annoucement may still be weighing on traders minds. Elan annoucement it was withdrawing an MS drug from trials because of 2 patient deaths killed the Biotech sector which dropped 6.5%. Finally, GM and Ford were downgraded because of analyst fears they will lose market share in 2005. The only ETFs that were up today were the B2B Internet and Internet ETFs. Biotech and Internet Infrastructure were the big losers.
The 10-year Treasury was down 23/32 to yield 4.36%. The Chicago Purcashing Manager's Index came in higher than expected, leading bond traders to conclude the employment report coming on Friday would show an increase in jobs. This would lead the Federal Reserve to perhaps increase their rate hikes. In addition, in Greenspan's commentary before the Senate banking committee last week, he stated he thought interest rates were too low. This comment may still be weighing on the markets.
The overall dollar index gained slightly today, largely as a result of the 10-year's drop (see above). Higher interest rates attract foreign buyers because after buying dollars, investors typically invest in interest bearing instruments such as Treasury bonds. The big currency news was the Yen's increase of .6% verses the dollar caused by better-than-expected Japanese industrial production numbers. Japan is technically in a recession (2 consecutive quarters of negative GDP growth). The increase in production indicates Japan may be coming out of their recession this quarter.
Crude Oil increased 26 cents to close at $51.75 a barrell. The Lebanese story spooked traders because of possible instability in the region and the winter storm coming to the NE this week added to the upward pressure. There are mixed reports coming from OPEC on the price of oil. Some members are content with the current price level while others are opting for production cuts to increase price. This lack of conformity in their public statements is adding to the confusion in the oil pits.
The US Census Bureau reported that sales of new 1-family houses in January were down 9.2% from December and 4.2% from January 2004. Hardest hit was the Northeast and Mideast, which dropped 17% and 40% respectively. The only area with an increase was the West, which increased 5%.
This might or might not be news. The weather in the Northeast probably contributed to the drop in that region (who wants to buy a house when its freezing). In addition, sales of most items slow in January because most people get their December credit card bills and cut cut back on spending. However, interest rates are on their way up and their effect may be a reason.
The Bureau of Economic Analysis reported that personal income decreased by 2.3% in January. However, December's number was heavily influenced by Microsoft's special dividend. When you take out this dividend, personal income was actually up .5% in January.
The BEA also reported "Real DPI (personal savings)-- DPI adjusted to remove price changes -- decreased 2.8 percent in January, in contrast to an increase of 4.2 percent in December. Real PCE (personal expenditures)-- PCE adjusted to remove price changes -- decreased 0.2 percent in January, in contrast to an increase of 0.9 percent in December."