In a classic case of over-promising and under-delivering, the Obama administration laid a bomb on Wall Street.
In his Monday evening Monday news conference, the President said, “I want all of you to show up at [Geithner’s] press conference as well; he’s going to be terrific.” Well, everybody showed up and all that they heard was more caution and little action as the new wunderkind looked more like a deer caught in the headlights than the boy genius touted by some politicians as the only living human being capable of fixing the banking mess.
However, Geithner did outline a plan to marshal the forces of the Fed, the FDIC, the private sector, and the Treasury Department to create a $500-billion public/private investment fund to recapitalize banks. Another fund of $1 trillion will support consumer and business lending.
The new Treasury Secretary also said that banks will have to undergo a “rigorous stress test” to determine if they can survive a more severe economic downturn and qualify for government capital.
Some were encouraged by the plan, but stocks had the worst day of trading since Jan. 20, and most performed dismally because of the lack of detail and strong leadership from the new Treasury Secretary. The speech was so lacking in substance that several members of Congress tried to put a better spin on it with one, according to CNBC, who said that a “mark-to-the-market provision” would be announced today.
Meanwhile, the Senate approved the $838-billion stimulus plan.
With little else to offset the disappointing bank rescue package, the Dow Jones Industrial Average (DJI) fell 382 points to 7,889, the S&P 500 (SPX) dropped 43 points to 827, and the Nasdaq (NASD) fell 67 points to close at 1,525.
The New York Stock Exchange traded 1.8 billion shares, with decliners ahead of advancers by over 5-to-1. The Nasdaq traded more than 1 billion shares, with a 5-to-1 ratio of decliners to advancers.
Crude oil for March delivery fell $2.01 to $37.55 a barrel, and the Amex Energy SPDR (XLE) lost $2.31, closing at $47.34.
The February gold contract rose $21.30 to $913.70 because of fears of future inflation from the huge stimulus plan. The PHLX Gold/Silver Index (XAU) fell $2.61, closing at $123.49.
What the Markets Are Saying
Even though the Treasury Secretary could have made a better impression on Wall Street, the over-reaction to the plan he outlined seems excessive.
In just hours after the announcement, the major indices backed away from the key 20- and 50-day moving average lines and plunged to the bottom of the current trading range. For the S&P 500 (SPX), the support is at 800 to 820 — and the index closed just seven points above the top line while the Dow actually penetrated its support line.
It is hoped that Geithner’s professorial lecture resulted from inexperience in explaining real issues to the public following an increase of Presidential expectations. If that’s the situation, then we should see more details and see them quickly.
With that in mind, we were buyers on yesterday’s decline with the expectation that further leaks and explanations will be forthcoming that will fill in the blanks and tend to stabilize the market.
In fact, as I was writing out some of my thoughts last night, Senator Chris Dodd was said that “mark-to-the-market,” which most analysts had hoped to see and did not, is part of the new plan and that and other details would be elaborated on today — we will see.
This type of emotional selling based upon disappointment about a government official’s lack of specificity is rattling to investors but it’s not unusual. And if the market recovers, it could actually tend to reinforce support zones and provide for a more stable platform as the weak holders are purged from the market.
To a technician, the most important issue is that the support zones of the market have held. But if the administration fails to come up with some solid details today, the markets could plunge through support and start a new leg down to more lows.
Today’s Trading Landscape
Earnings of note to be reported include: Acadia Realty Trust, Activision Blizzard, ADDvantage Technologies Group, Advanced Semiconductor Engineering, Agrium, Alcon, Allegheny Energy, American Ecology, ArcelorMittal and Arris Group.
BioMed Realty Trust, Buffalo Wild wings, CAE, Cai Int’l, Cambrex, Cardiovascular Systems, Chipotle Mexican Grill, Coca-Cola Enterprises, Compellent Technologies, Comscore, Core Laboratories, Corporate Office Properties Trust, CPI Int’l, Credit Suisse Group, CyberOptics and Cymer.
Dean Foods, Delphi Financial Group, Drew Industries, Dupont Fabros Technology, EastGroup Properties, Encore Capital Group, Equinix, Everest Re Group Ltd, EZchip Semiconductor Ltd and Forrester Research.
Genesee & Wyoming, Genzyme Corp, Gildan Activewear, Great Plains Energy, GSI Commerce, Infospace, Ingersoll-Rand Co Ltd, Int’l Coal Group, iRobot Corp, Jarden Corp, Jones Apparel Group, KBW and Kenexa.
L-1 Identity Solutions, Lance, Lannett Co, Las Vegas Sands Corp, Lender Processing Services, Libbey, LoopNet, Macerich, Masco, Max Capital Group Ltd, Medtox Scientific, Millicom Int’l Cellular S.A. and Molina Healthcare.
Net Servicos de Comunicacao S.A., NetApp, NICE Systems, NV Energy, P.F. Chang’s China Bistro, Pacer Int’l, Penn Virginia, Penn Virginia GP Holdings LP, Penn Virginia Resources, Petrobras Energia Participaciones S.A., Plains All American Pipeline and Post Properties.
Questar Corp, Rand Logistics, RenaissanceRe Holdings, Reynolds American, Sanofi-Aventis, Sequenom, Sigma-Aldrich Corp, SkyWest, SonicWall, SunLink Health Systems, Symyx Technologies, Tekelec, Terex Corp, Toll Brothers, Willis Group Holdings Ltd, Wright Express Corp, and ZymoGenetics.
The economic reports due today are: Feb. 6 MBA Mortgage Application Refinance Index, December Trade Balance (the consensus expects negative 36 billion), Feb. 6 U.S. Energy Dept Oil Inventories, and January Federal Budget Balance (the consensus expects an $87.5 billion deficit).
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