U.S. stocks slumped today after less-than-spectacular news hit the Street concerning the nation's unemployment rate. Joel Naroff, president of Naroff Economic Advisors, said, "With the unemployment rate over 6%, it is a clear warning sign that the economy is continuing to soften faster than we thought. It is a real concern." This week marks the worst week for global equities since the week of September 11 attacks in 2001.
Economic News
The Mortgage Bankers Association (MBA) said today that the rate of mortgages in foreclosure rose to another record high in the second quarter. The seasonally adjusted foreclosure starts rate arrived at 1.19%, up from 0.99% in the first quarter and 0.65% in the year-ago quarter. Meanwhile, the mortgage delinquency rate climbed to 6.41%, its highest level since the MBA began using its current metrics to measure home loans in 1979.
Foreclosure levels are concentrated by region, with increases in California and Florida outweighing improved readings in states such as Massachusetts and Maryland. As MBA's chief economist, Jay Brinkmann, stated, "The national foreclosure numbers continue to be driven by the hardest-hit states continuing to get much worse."
Elsewhere, the Labor Department said this morning that nonfarm payrolls fell by 84,000 in August, outpacing economists' expectations for a decline of 75,000. Additionally, job losses for June and July were revised lower from a loss of 100,000 to a loss of 160,000.
The national unemployment rate spiked as a result, climbing to 6.1% in August -- its highest level in nearly 5 years. Economists were expecting unemployment to remain unchanged at the previous month's reading of 5.7%.
For next week's earnings calendar, click here.
Equity Update
Take-Two Interactive Software (TTWO: sentiment, chart, options) reported a third-quarter profit of $51.8 million, or 67 cents per share, on revenue of $433.8 million. Excluding one-time items, Take-Two would have earned $71.5 million, or 93 cents per share. The report blew past analysts' expectations for a profit of 67 cents per share on $379.5 million in revenue. The company said its results were aided by strong sales of its Grand Theft Auto IV video game. At last check, TTWO had added 0.22%.
Elsewhere in earnings news, ADC Telecommunications (ADCT: sentiment, chart, options) posted quarterly earnings of 12 cents per share. The results included expenses totaling 15 cents per share, bringing the ex-item results to 27 cents per share. These results topped the consensus estimate by a penny. ADCT then forecast fourth-quarter sales would be lower sequentially because customers' capital spending will be lower. The company forecast full-year earnings between 10 cents and 18 cents per share, down from 18 cents to 26 cents per share. The better-than-expected earnings results have helped the equity in today's trading; shares of ADCT are up more than 6%.
In other news, American International Group (AIG: sentiment, chart, options) shed more than 6% yesterday amid broad-based selling pressure. In today's session, though, AIG has brushed off a Morgan Stanley downgrade to march into positive territory. Specifically, in a note to clients this morning, Morgan Stanley warned that AIG's debt ratings are "highly vulnerable." The brokerage firm slashed its opinion on the Dow component from "overweight" to "equal weight." Analyst Nigel Dally also cut his price target on the shares to $25, noting, "We believe a sizable capital raise is likely, probably in the range of $10 billion to $15 billion, the majority of which is likely to be common equity." At last check, AIG had added 0.61% after hitting a 13-year low yesterday.
Looking at the Numbers
At last check, the Dow Jones Industrial Average (DJIA – 11,133.93) had dropped 54.30 points, or 0.49%. Of the Dow's 30 components, 10 were able to find positive territory. Leading the advancing issues were J.P. Morgan Chase (JPM) and Bank of America Corporation (BAC). General Electric (GE) was hovering at the break-even point. For the majority of the blue chips, IBM (IBM) and Chevron (CVX) led the way into the red.
The S&P 500 Index (SPX – 1,227.89) had lost 8.94 points, or 0.72%. Consumer staples was the only 1 of the index's 10 industry groups able to post gains. Energy fronted the declining sectors. The Nasdaq Composite (COMP – 2,236.99) rounded out the declining indices. The tech-heavy indicator had shed 22.05 points, or 0.98%.
Checking Commodities
Crude oil is set for its biggest weekly decline in a month, as it has fallen more than 6% this week. According to an August 15 OPEC forecast, demand for crude will increase 1% in 2009, marking the slowest rate in 7 years. At last check, crude oil had lost $1.89 to trade at $106 per barrel. The price of crude has now dropped 27% from its July 11 peak of $147.27 per barrel. Toby Hassall, an analyst at Commodity Warrants Australia, said, "The rally in the U.S. dollar is weighing on prices, and adding to that is the weak macro-economic data from the U.S. and Europe. The outlook looks bearish and funds are selling off on fundamental weakness."
Contrary to crude oil's loss, gold has now gained the most in more than a week. The weak U.S. jobs figures have pushed the U.S. dollar lower, thus creating a demand for the malleable metal as a hedge. Tariq Mahmood, a Dubai, United Arab Emirates-based technical analyst, said, "We are looking at $830 to $835 an ounce in the next week; the dollar is in the overbought region." At last check, gold had added on $11, or 1.3%, to trade at $814.20 an ounce.
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