Wednesday, September 21, 2011

Markets nose dive after FOMC meeting

Ben Bernanke has run out of magic tricks to help an ailing recovery.  Dow dropped 283 (closing at the lows), decliners over advancers more than 4-1 & NAZ sank 52.  Banks led the way down, hurt by credit downgrades from Moody's for major banks.  The Financial Index is at levels not seen since May 2009.

S&P 500 Financials Sector Index

Value160.47One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change   -8.34     (-4.9%)

The MLP index had a big drop following its 10% move up in recent weeks & the REIT index plunged 11 to 210 (where it was after the plunge on Aug 8).  Junk bond funds were slightly lower & 10 year Treasuries rallied to new highs (record low yields) on the expectation of more buying by the Federal Reserve.  Oil sold off in sympathy with stocks & gold retreated below 1800 once again.

Alerian MLP Index

Value353.47One-Year Chart for Alerian MLP Index (AMZ:IND)
Change  -5.03    (-1.4%)

Click for the latest market update below:

Treasury yields:

U.S. 3-month


U.S. 2-year


U.S. 10-year


CLX11.NYM...Crude Oil Nov 11...85.96 ...Down 0.96  (1.1%)

Live 24 hours gold chart [Kitco Inc.]

Fed Will Shift Treasury Holdings to Longer-Term Securities

Photo:   Bloomberg

The Federal Reserve (FED) will replace much of the short-term debt in its portfolio with longer-term Treasuries to further reduce borrowing costs & keep the economy from relapsing into a recession.  It will buy $400B of bonds with maturities of 6-30 years thru Jun while selling an equal amount of debt maturing in 3 years or less.  The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the FOMC said.  “Operation Twist” (similar to a FED action in 1961) may lower interest rates & avoids reprising the money creation that sparked criticism last year.  “There are significant downside risks to the economic outlook, including strains in global financial markets,” the FED statement said.  The pledge to keep the benchmark interest rates near zero through at least mid-2013 was unchanged as long as unemployment remains high & the inflation outlook stays “subdued.”  The FED also said it will also reinvest maturing housing debt into mortgage-backed securities instead of Treasuries “to help support conditions in mortgage markets.”  What else can the FED do now?

Fed Will Shift Treasury Holdings to Longer-Term Securities

Oracle Corp. CEO Larry Ellison

Larry Ellison
Photo:   Bloomberg

Oracle reported profit that topped estimates, boosted by increased spending on database programs & applications that help run businesses.  Fiscal Q1 EPS excluding some items was 48¢ , above the 47¢ estimate.  Sales rose 12% to $8.37B, matching projections.  ORCL spent more than $40B on takeovers since 2005 to add programs that help large corps manage operations & tackle complicated computing tasks.  New software license sales, a predictor of future revenue, rose 16% to $1.5B, beating the 15% gain estimated by an analyst & hardware sales (less profitable) declined 1.4% to $1.67B.  The stock rose 1.15 (4%) in an ugly market.

Oracle Corporation (ORCL)

stock chart

Greece announced new austerity measures!  I think have heard that before.  That means it doesn't qualify for another loan, so more Scotch-Tape will be used to put the economy together.  If their bailout is extended, that would be nothing to brag about.  The country would still be on the edge of failure.  Back to domestic problems, markets finally caught on there's not much the FED can do with interest rates already at record low levels.  The political goings on in DC about reducing massive federal deficits were ignored.  They will get more attention in the coming weeks, especially with the deadline to come up with $1½T in savings just 2 months away.  Dow is down 500 this month & 1K since the start of Aug.  More pain is coming.

Dow Industrials (INDU)

stock chart

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1 comment:

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