Banks had a very bad day (strongly influenced by Citi news) taking the S&P 500 FINANCIALS INDEX down sharply:
The Alerian MLP Index was up 2, rising thru the day then giving up ground going into the close (shown in the Yahoo badge on the right). REITs, junk bonds & the VIX were flattish to weak. Even oil & gold were only slightly down.
The 6.2% annualized shrinkage in the economy ranks as bleak. Markets took the revised GDP numbers fairly well, they were probably already discounted The next qtr may be dreary but hopefully will be less bad. H2 while showing a decline should see further improvement. Gov spending may start to show up then although may not be fully felt until next year. All this assumes the credit crunch doesn't get much worse.
Citi has changed from a stock to a call (even though it's still in the Dow). Because of gov backing (investment), its life has been extended to indefinite (maybe many months). It's selling around 1½ which will be tempting for those who don't mind playing with fire. Any form of excitement could give a quick double. Of course, Barney Frank is now the CEO. He will make/influence more & more business decisions as he will be speaking for the largest stockholder. Citi should not be viewed as the only bank in trouble. More cases will arise.
General Electric (GE), down 59¢, slashed the div to only 10¢ despite numerous reassurances that the div was safe. S&P will have another company to be removed from the Dividend Aristocrat list at year's end. In 2009, already, PFE, SST, MAS & now GE, all from the group, have cut divs. Most of the remaining ones are strong & should be able to continue & make at least modest increases to remain in the group. KO has already announced a div increase, extending their streak of paying higher annual divs to 47.
More div cuts will be coming from the many not in this group. Caterpillar, a Dow stock I like because they should do well helping the new economies grow around the world, will have tough decision about maintaining its div. Earnings are projected to provide only limited coverage, if that. Many more companies will also face tough choices about continuing their divs.
•GE Slashes Dividend 68% as CEO Immelt Tries to Protect Top Credit Rating
Dow has adjusted to living between 7-8K. It's always difficult to predict to next breakout move, but it has been playing defense after the move down into the 7K area & it closed just above the new floor.
Dow Jones Industrials --- 2 weeks