EQUITY FUTURES STAGE HISTORIC COLLPASE, DOW BREAKS BELOW 7000 AS WORRIES REGARDING FINANCIALS AND BAILOUTS ERODE INVESTORS BELIEF IN VALUE OF EQUITIES.
U.S. Equities staged a massive sell-off in Monday’s session as AIG reported the largest quarterly loss for a company in history. Negative sentiment began the session as follow through pressure on financials from Asian & European indices set the tone. HSBC announced that it was pulling out of the majority of its North American businesses and interests and refocusing on its traditional spheres of influence and clients. The pullback led by financials was exacerbated by the report that AIG had incurred a $61 billion loss in the 4th quarter due to falling value of its global asset portfolios. The company also announced that it would be drawing on an additional $31 billion lifeline from the U.S. government. While AIG executives claimed that the bailout would allow the company to offer up portions of itself to interested parties at non fire sale prices, the markets took the news as another example of the massive erosion of value which continues to grip the current structure of the global financial system. Equities continue to fall with the Dow and S&P breaking through the psychologically significant 7,000 and 700 levels respectively.
Even investment managing legend Warren Buffett managed to contribute to the fall today. In his annual letter to shareholders, he stated that the U.S. economy was “in shambles” and that a quick fixed during 2009 was unlikely. This statement came during the report of Buffett’s worst annual return for his funds since he took over 40 + years ago.
The downward spiral in equities was once again led by the (penny stock) financial sector. Citigroup closed at $1.20 as the markets foresee the troubled bank as having little in the way of a viable plan to salvage any shareholder value. Industrial and energy stocks fell as commodity prices overall came under pressure from global recession fears. Equity investors are also feeling the strain from sectors that were previously thought to have secure dividend strategies cutting back in order to preserve capital. General Electric fell again from Friday after announcing that it would be cutting its dividend by 60%. The move, designed to preserve capital and its triple AAA rating, may only work for one out of two, as ratings agencies may still cut the firms credit rating due to its weakening capital and financial position.
Technically, March Dow Futures are in uncharted territory as they fall to 1997 levels. The contract appears to be skimming along an oversold support level and could fill in a gap left from 6930. Holding above this level could allow for a return to 7030. If 6930 does not hold, the market should test the downside to 6660.
EQUITY RANGES
OPEN
HIGH
LOW
CLOSE
CHANGE
DJH9 (MARCH DOW)
6930
6960
6748
6790
-262
SPH9 (MARCH S&P)
719.00
724.30
699.00
705.50
-28.70
NDH9 (MAR NASDAQ)
1100.00
1117.00
1074.00
1086.00
-31.00
Prepared by Rich Roscelli & Paul Brittain.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.
