U.S. stock futures have plummeted this morning, indicative of an extremely weak start to the regular session of trading. If overseas indices are any predictor of which side of the bed Wall Street will wake up on, we may be in for a rough ride. In just 2 days, Japan's Nikkei 225 Index has declined more than 10%, marking the sharpest drop in nearly a decade. Stocks under the earnings microscope this morning include Johnson & Johnson, Bank of America, and Apple.
And in a move that will hopefully stave off market disaster this morning, the Federal Reserve announced a surprise intra-meeting rate cut of 75 basis points, moving the federal funds rate to 3.5%. This is the biggest 1-day move by the central bank in recent history. Federal officials reportedly held a conference call last night after broad selling overtook global markets. In an accompanying statement, the Fed said it cut rates "in view of a weakening of the economic outlook and increasing downside risks to growth."
Taking a quick look around the street, February-dated crude has lost more than $3, hovering beneath the $87-per-barrel mark, while gold futures have dropped more than $15.50 to $866 an ounce. The dollar pared some of Monday's losses against the yen, as investors ponder the likelihood of a Japanese rate cut, but was mostly lower against a plethora of European currencies.
Making earnings news this morning was Bank of America (BAC: sentiment, chart, options) , reporting fourth-quarter earnings of $268 million, or 5 cents per share, dramatically down from last year's numbers of $5.26 billion, or $1.16 per share. The financial giant's provision for credit losses rose, as it posted net write-offs of $1.99 billion. Despite the severe decrease in earnings, the firm has stated that it is "cautiously optimistic" regarding 2008, according to MarketWatch, though it continued to predict light economic growth for the first half of the year.
Also making earnings news was Dow component Johnson & Johnson (JNJ: sentiment, chart, options) . The company reported fourth-quarter net income of $2.37 billion, or 82 cents a share, from $2.17 billion, or 74 cents a share, a year ago. Excluding items, fourth-quarter earnings were 88 cents a share, 2 pennies higher than analysts predicted. Total sales increased almost 17% to $15.96 billion, from $13.68 billion in the period a year ago. Worldwide consumer sales inclined 48.5%, with medical device sales jumping 11.3% and global pharmaceutical sales rising 7.5%.
Looking ahead, Apple (AAPL: sentiment, chart, options) will step into the earnings limelight after the market's close today.
Economic Calendar
The economic agenda is extremely light this week. The economic calendar will begin and end on Thursday, with the initial jobless claims report, December's existing home sales data, and the delayed crude inventory report. For a complete run down of days and times for this week's economic releases, please see the chart at the bottom of page 2.
Market Statistics
Equity option activity on the CBOE saw 1,693,419 put contracts traded on Friday, compared to 1,667,640 call contracts. The resultant single-session put/call ratio eased to 0.98, and the 21-day moving average advanced to 0.73
**Due to technical difficulties, we were unable to include Friday's trading volume data for the Nasdaq and NYSE exchanges.**
Overseas Trading
Overseas trading is rather dismal this morning, with only 1 of the 11 foreign indices that we track in positive territory. The cumulative average return on the collective stands at a loss of 3.45%. Japan's Nikkei 225 Index slid more than 5.6%, marking the biggest decline in almost a decade, while the Heng Sang Index lost 8.65%. Following suit was the Shanghai Composite, which ended more than 7.2% in the red. Analysts attribute the continental decline to investor fear of a U.S. recession, despite the Fed indicating more interest-rate cuts.
Across the pond in Europe, stocks had a rough day yesterday, as London's FTSE 100 Index marked the largest single-day decline since the terrorist attacks in 2001. This morning, indices are sinking again, but at last check had pared some of the early losses. As is the case in the Far East, analysts are speculating that European investors are concerned about U.S. markets, despite hopes of an interest-rate cut and a plan to stimulate the economy.
The U.S. Dollar Index (DX/Y – 76.39) added 0.29% on Friday, as the old greenback held most of its gains against the euro, but lost ground against the Japanese yen. Spurring the mixed session was tumult in the equity markets and debates as to whether Washington's economic stimulus plan would actual aid a flagging economy. Against this backdrop, the euro traded down at $1.4610, while the dollar slipped to 106.71 against the yen.
The futures contract on the 30-year bond (US/H8 –119'19) slipped 16/32 on Friday, as longer-dated bonds suffered modest losses on the session, while investors pondered the impact of U.S. fiscal stimulus steps and potential rate cuts from the Fed. Looking at Fed funds futures, the February contract is now indicating a 72% chance for a 75-basis-point cut at or before the January 29-30 Fed meeting, leaving expectations for a 50-basis-point cut in the dust.
Commodity Corner
Late-day short covering pushed gold futures $1.20 per share higher to $881.70 an ounce on Friday. Gold started higher, then slipped into negative territory for a while as the dollar firmed. However, some traders were reluctant to hold on to their short positions heading into the long holiday weekend. This covering was the major reason for the malleable metal's slight advance. Some investors expect that there could be an inter-meeting rate cut thanks to the stimulus package. This hope has helped gold, as a cut could mean more downside for the dollar.
Crude prices stabilized on Friday, as the front-month contract added 44 cents to settle at $90.57 per barrel. The session's gain brought an end to three straight losing days, but futures still dropped 2.3% for the week. Looking further back, black gold has slipped 9.1% since tagging $100 per barrel on January 2. Crude weakened as investors were less than enthusiastic toward President Bush's proposal, but some investors are suggesting that we may be seeing a bit of a correction.
Unusual Put and Call Activity:
For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations.
To read more of our analysis on the market's biggest stories, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
Discuss this article:
Post your own comment
More articles:
The Dow Jones Industrial Average (DJIA) closed below 10,000 for the first time since early November yesterday, as traders weighed growing concerns about European debt loads and a Wall Street Journal report that Federal Reserve Chairman Ben Bernanke will begin preparing to tighten credit later this year. However, it appears that Wall Street is in for a bounce this morning, as U.S. stock futures on the Dow are up 54 points at 9,949, or about 80 points above fair value. S&P 500 Index (SPX) futures are trading nearly 10 points above fair value, with the index hovering just above key support at its 160-day moving average. Finally, the CBOE Market Volatility Index (VIX) remains capped by its 160-month trendline, but could find support near the 25 level amid a potential bounce back in the equities market today. read more...
The Dow Jones Industrial Average (DJIA) held onto the 10,000 level by the skin of its teeth last week, as a late-session rally pushed the Dow some 170 points higher on Friday. That support could be called into question early in today's trading, as U.S. stock futures on the DJIA are up 11 points at 9,952, or about 16 points below fair value, pointing toward a weak open. Meanwhile, the S&P Depository Receipts (SPY) exchange-traded fund (ETF) is hovering above peak put open interest at the 105 level, which corresponds to 1,050 for the S&P 500 Index (SPX) -- a region that could provide additional support for the index. Finally, the CBOE Market Volatility Index (VIX) closed above its 200-day moving average last week, suggesting that the market is moving toward higher volatility, which could mean additional selling pressure. read more...
Wall Street is struggling to right itself following yesterday's nearly 270-point loss by the Dow Jones Industrial Average (DJIA). The drubbing sent the Dow below the 10,000 mark on an intraday basis for the first time since Nov. 6, 2009. On the sentiment front, the latest American Association of Individual Investors survey data revealed the lowest bullish and highest bearish percentages since Nov. 5. This technical and sentiment backdrop could make today's U.S. unemployment rate and jobs data even more important for the market as a whole. VIX watchers will also want to note that the CBOE Market Volatility Index (VIX) is flirting with overhead resistance at its 10-month moving average. The index hasn't traded significantly above this trendline on a daily basis since April 2009. read more...
Concerns about government debt in the euro zone are helping to extend yesterday's malaise on Wall Street. A poorly received services sector report and lackluster corporate earnings helped push the S&P 500 Index (SPX) back below its 80-day moving average Wednesday. U.S. stock futures on the SPX were last seen lower by 6.70 points at 1,089.70, or about four points below fair value, pointing toward additional weakness for the index heading into the open. News that Portugal's finance ministry cut the size of a bond issue is adding to the negative mood on Wall Street, as traders were already keeping a close eye on Greece's debt load. Cisco Systems Inc. (CSCO) could prove to be a bright spot, as the company reported a better-than-expected quarterly profit after the close last night. As for the CBOE Market Volatility Index (VIX), the so-called "fear" index crept higher yesterday, edging back above its 10-week moving average. read more...
The S&P 500 Index (SPX) surmounted a key technical hurdle yesterday, as the broad-market index reclaimed its 80-day moving average in the wake of a two-day, nearly 3% rally. The bulls are in a holding pattern this morning, however, as Wall Street will get its first dose of monthly employment data from ADP, a report that is often viewed as a preview for Friday's nonfarm payrolls and unemployment report. Heading into the open, U.S. stock futures on the S&P 500 Index (SPX) are basically flat, up only 1.5 points at 1,098.7, or about 1.17 points below fair value. Meanwhile, the CBOE Market Volatility Index (VIX) extended its recent backslide, and could be poised to finish the week back below its 10-week and 20-week moving averages. Such a weekly finish would continue a pattern that has contained the VIX for the better part of the past year. read more...
Wall Street kicked the month off right yesterday, with the major market indexes rallying roughly 1% across the board, fueled by strong corporate earnings and economic data. The February jumpstart had a negative effect on the CBOE Market Volatility Index (VIX), which broke back below potential support at its 20-week moving average. A resumption of the VIX's long-term downtrend could have bullish implications for stocks. Speaking of which, equities appear poised to extend Monday's gains, with U.S. stock futures on the Dow Jones Industrial Average (DJIA) up 25 points at 10,162, or about 27 points above fair value. read more...
If the saying "as goes January, so goes the rest of the year" holds true, Wall Street could be in for a rough year. The major market indexes dropped nearly 4% across the board last month, setting an unnerving tone for the rest of 2010. What's more, the S&P 500 Index (SPX) broke below its 80-day moving average for the first time since the March 2009 bottom last week, providing more technical fuel for the bears. There is a positive bias heading into the open this morning, however, with U.S. stock futures on the SPX up 4.60 points at 1,075, or roughly 4.58 points above fair value. What's more, sentiment could also be on the bulls' side, as the latest American Association of Individual Investors survey looks very similar to readings taken at the September and October 2009 bottoms. As for the CBOE Market Volatility Index (VIX), the fear barometer remains trapped between its 10-month moving average, near the 27 level, and its 20-week moving average, near the 23 level. read more...
The S&P 500 Index (SPX) began the week trading below potentially staunch resistance at its 80-day moving average, and the weeks' events have the index trading about 1.3% below this key technical benchmark. As Todd Salamone noted in Monday Morning Outlook, a reclamation of the 80-day trendline could send the SPX back to the 1,150 within the next few weeks, while a failure here could send the index down to the 1,050 area. There is an upward bias heading into the open this morning, as U.S. stock futures on the SPX are up 2.40 points at 1,081.60, or about half a point above fair value. Driving the bullish momentum are earnings reports from Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), and Honeywell International Inc. (HON). However, enthusiasm is being held in check, as Wall Street awaits the release of the advance report on fourth-quarter U.S. gross domestic product (GDP). read more...
Traders have quite a bit of data to digest this morning, following last night's State of the Union address and yesterday's Federal Open Market Committee (FOMC) policy statement. First, with the Fed's economic outlook improving, Kansas City Fed President Thomas Hoenig dissented from the committee's decision to keep accommodative language in the official Fed statement. Meanwhile, President Obama also highlighted economic improvements, while calling for a wave of job creation measures and a redoubling of efforts to finish health care reform. Wall Street is handling the deluge pretty well, as U.S. stock futures on the Dow Jones Industrial Average (DJIA) are up 23 points at 10,218, or about 32 points above fair value. Despite its recent pullback the Dow is holding steady above its 20-week moving average. As for VIX watchers, the CBOE Market Volatility Index (VIX) continued its retreat yesterday, with the index now perched on potential support at its 20-week moving average. read more...
The Federal Open Market Committee's (FOMC) decision on U.S. monetary policy and interest rates is due out this afternoon, while President Obama is slated to give the annual State of the Union address later tonight. Despite recent negativity directed toward Washington, Wall Street appears cautiously optimistic in early trading activity, as U.S. stock futures on the Dow Jones Industrial Average (DJIA) are up 25 points at 10,163, or about 18 points above fair value. Ahead of the FOMC and Obama's speech, traders will be graced with December's new home sales report, a slew of earnings reports, and a special announcement from Apple Inc. (AAPL). As for the CBOE Market Volatility Index (VIX), the fear barometer found support at its 20-week moving average yesterday, after extending its pullback from Friday's near-term high at 28.01. read more...
Today's Most Popular Stories