Alcoa (AA), a Dow stock, kicked off earnings season last night with a large loss. Asian markets followed by European markets sold off heavily on this disappointing news.
US markets are digesting the news. After starting with gains, Dow slipped back to a slight loss, advancers are 25% ahead of decliners & NAZ is up 7. Oil is even but still in the 37's, near the lowest level in years.
MLPs & REITs are up modestly.
Bloomberg has a story about junk bonds finding new friends in recent weeks. After investors sold these funds all year (largely after Sep 15), they have been buying aggressively recently. For example, one of mine is up 50% from its recent lows a month ago. They are betting that extraordinarily high yields more than compensates for the risk of higher defaults.
Junk Debt Signaling Great Depression Defaults Lures TCW
Alcoa's report yesterday was felt the world. Their customers are auto companies, aircraft & construction industries. This was just one more reminder that these prime businesses are hurting badly. However revenues came in ahead of forecasts, but the loss of per share was 1.49. Grrr!! They've paid a div for 60 years but the company's outlook is uncertain raising fears about a large div cut (which will be announced later this week). More pain is coming for AA in Q1. Today AA is down again, to 9.60.
S&P 500 FINANCIALS INDEX is down pennies after a big loss yesterday. Banks keep selling assets to shore up balance sheets. Provisions for loan losses still have to be increased, explaining why they are reluctant to lend. This dreary outlook may sink the index to another new low.
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