Tuesday, November 1, 2011

Markets in disarray on Greek referendum

Dow dropped 205 (but off earlier lows), decliners over advancers 7-1 & NAZ fell 53.  Bank stock are leading the way lower with the Financial Index suffering a substantial loss on Greek debt worries.

S&P 500 Financials Sector Index

Value 175.814 One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change     -5.77    (-3.2%)

The MLP index fell 5+ to the 368s & the REIT index was off 3½ to the 228s.  The VIX, volatility index, jumped 4 to the 34s (up 9 in 2 days) on increased uncertainty in the markets.  Junk bond funds fell while Treasuries soared bringing the yield on the 10 year Treasury near 2%.. Oil fell for a 3rd day after a Greek pledge to hold a referendum raised the prospect of the failure of the bailout plan & Chinese manufacturing growth slowed.  Gold fell sharply, bringing it back below 1700.



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CLZ11.NYM....Crude Oil Dec 11...90.55 .....Down 2.64  (2.8%)

GCX11.CMX...Gold Nov 11.......1,683.80 ...Down 40.40  (2.3%)

Get the latest daily market update below:

Greek Prime minister Papandreou delivers a speech to Panhellenic Socialist Movement parliamentary group in Athens

Photo:   Yahoo

A Dutch Labor party member said that a Greek decision to hold a referendum would be a "deal-breaker" for last week's accord to resolve the European debt mess.  The conservative Dutch gov needs Labor's support to achieve a majority in parliament in support of the deal, meaning Labor could effectively veto it.  The Dutch parliament is debating the EU agreement now.  Europe's new plan to solve its crippling debt crisis has been thrown into turmoil by the Greek Prime Minister's shock decision to call a referendum on the country's latest rescue package. Months of uncertainty over the vote will threaten the stability of larger economies like Italy, which saw its borrowing rates rise sharply.  It will also hinder European leaders' efforts to get countries like China to contribute to their expanded bailout fund & to convince banks to accept bigger losses on their holdings of Greek debt.  Greek Prime Minister Papandreou stunned investors, as well as his own citizens & partners in the eurozone, by announcing that a plebiscite will be held in what he called "a supreme act of democracy and of patriotism for the people to make their own decision." A confidence vote in the Socialist gov will also take place at the end of this week.  This spells chaos, very bad for the markets.

  • <p>A view of the Belgian headquarters of U.S. pharmaceutical giant Pfizer, in Brussels January 23, 2007. REUTERS/Francois Lenoir</p>
Photo:   Yahoo

Pfizer, a Dow stock, had better-than-expected quarterly results, helped by the weaker dollar & strong performance of the nutritionals & animal health businesses it plans to sell or spin off.  It boosted its full-year 2011 profit forecast & predicted 2012 earnings will be little changed from this year despite the loss of patent protection for Lipitor in the US on Nov 30.  A handful of promising new drugs are working their way thru late-stage trials which has restored some faith in the company.  EPS was 48¢ in Q3, including a $1.3B after-tax gain on the recent sale of its Capsugel business, ahead of 11¢ last year when the company took a big charge for asbestos litigation.  Excluding special items, EPS was 62¢, beating expectations of 56¢.  Revenue rose 7% to $17.2B, well above expectations of $16.4B.  But revenue would have risen only 1% if not for the weak dollar.  The stock rose 40¢ in a declining market.

Pfizer Profit Tops Estimates on Pain Drug

Pfizer, Inc. (PFE)

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U.S. Manufacturing Expanded Less Than Forecast in October

Photo:   Bloomberg

The Institute for Supply Management’s Non Manufacturing survey fell in Sep to 53.0 from 55.3 in Aug, but better than expectations of 52.8.  However, it'is not a great reading as it has averaged 55 & hit a high or 59.7 in Feb.  It has been over the magic 50 level for 22 straight months.  6 of the sub-indices fell while 4 increased on the service side & 7 are above the magic-50 level.  While the increases are welcome, current levels indicate that order backlogs are growing, but slowly.  Still, better than shrinking the way they were in Aug.  This is the usual sort of mixed news on the economy which shows the recovery is stuttering.

ISM Index of U.S. Manufacturing Falls

European leaders were hoping that waving a magic wand would make debt problems go away.  Not so.  The debt mess is getting worse which causes more selling of stocks.  The chart below shows the Dow has stumbled badly this week (but remains up 1% YTD).  The US economy continues soggy.  Early reports for car sales in Oct show Chrysler had a good month, but General Motors (GM) had a meager gain.  Fri is the big jobs report & that could add more gloom on the demestic scene.  The bulls have given up command, stocks are back on defense & could be seeing a lot more selling.

Dow Industrials (INDU)

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