Tuesday, November 22, 2011

Reduced GDP growth weighs on markets

Dow was under water all day, finishing with a loss of 53, decliners were ahead of advancers 3-2 & NAZ was about even.  Selling in bank stocks led today's modest decline.

S&P 500 Financials Sector Index

Value162.12One-Year Chart for S&P 500 Financials Sector Index GICS Level 1 (S5FINL:IND)
Change   -1.51    (-0.9%)

The indices for the MLP index & REIT index were each fractionally lower.  Junk bond funds & Treasuries were mixed.  Oil gave up some its AM gains in the PM.  Gold  rose the most in a week after mounting debt woes in the US & Europe spurred demand for the metal.

AMZ  Alerian MLP Index

DJR  Dow Jones Equity REIT Index

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CLF12.NYM...Crude Oil Jan 12....97.86 ...Up 0.94  (1.0%)

Live 24 hours gold chart [Kitco Inc.]

Bernanke gives testimony at a Joint Economic Committee hearing on the economic outlook, on Capitol Hill in Washington

Photo:   Yahoo

The Federal Reserve (FED) discussed at its recent meeting how to give businesses & investors more information about what might trigger an increase in interest rates.  A panel is exploring ways to provide more information on future central bank moves.  It is believed that more clarity on interest rate policy could help reassure investors & businesses that rates will stay low.  In Aug, the FED said it planned to keep short-term rates near zero until at least mid-2013, as long as economic growth remained weak.  After the Nov meeting, the FED sketched a bleaker outlook for the US economy, which it predicted would grow much more slowly & face higher unemployment than it had estimated in Jun.  While the FED announced no new policy actions after the meeting, the gloomier forecast increased the likelihood that it would take new steps soon.  The decision to leave policy unchanged in Nov was approved on a 9-1 vote.  The vote was a shift from the previous 2 meetings when 3 members had dissented for the opposite reason.  The 3 members argued those moves increase the risks of future inflation. The rest of the board seemed to agree that inflation is under control & the FED should focus more on policies that could help lower the unemployment rate.  After the minutes were released, the market rose but sold off again in late day trading.

Groupon, the largest internet daily-deal site, plunged 15%, dragged down for a 2nd day on concern that profit margins will be squeezed by surging marketing costs & competition from rivals such as LivingSocial.com, (backed by Amazon.com).  It also became cheaper to borrow the shares for short sales, bets that the stock will decline.  GRPN was hyped after the IPO but now investors are having 2nd thoughts.  The stock fell $3.51 to $20.07 (just above the IPO price) & would have behaved much better if the markets were healthy.

GRPN    Groupon Inc.

The implosion of the supercommittee is likely to delay any major deficit-reduction agreement until after the next presidential election which may pose an immediate threat to the struggling US economy.  Failure means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weigh on household spending that accounts for 70% of the US economy.  This also stoked doubts about lawmakers’ ability to overcome partisan gridlock & deal with the nation’s fiscal future.  However, S&P reaffirmed that it would keep the US credit rating at AA+ after stripping the AAA grade on Aug 5.  Moody’s reaffirmed its AAA rating with a negative outlook.  Fitch noted what it said in Aug that a supercommittee failure would probably result in a “negative rating action,” likely a revision of its outlook to negative, & that a review would be concluded by the end of this month.   Doubts created by this super failure are not going away anytime soon.

Supercommittee Failure Poses Economic Threat

The FED doesn't know what to do next to help the economy, like of the rest of us.  Markets are floundering, looking for guidance & not getting help from anybody.  At least today was more like the traditional day of trading before a holiday, quiet with little happening.  Dow remains on defense, near the 11½K level.

Dow Jones Industrial Average

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