Banks a Drag on Markets Again

by: Bill Cara

Thursday was another day where the market closed at session lows because of a sharp sell-off late in the day, largely in the banks.

At the close, for the third day in four, the DJIA (8,422.04 -52.81 -0.62%), S&P 500 (903.47 -4.66 -0.51%) and NASDAQ Composite (1,727.84 -6.70 -0.39%) all were down. Interestingly, however, the indexes are up over that time.

The Toronto Composite and Toronto Venture Board were for the second straight day up strongly after the holiday Monday.

After two days of listening to pundits like Biryini, Hartman and others say that the market is now in a Bull, economist David Rosenberg expressed the opposite view. On Bloomberg, he said he was amazed to hear these 'green shoot' theories because this, in his mind, is now and for the future a time of consumer debt pay-down, and that business managers would not rebuild inventory until they were absolutely sure the recessive economy had turned. Rosenberg believes that much of the trillions of cash we hear are on the sidelines of the capital markets are actually going to be used to reduce consumer and corporate debt. If true, the banks would be less well off.

In NY, the sector loser for the second straight day was Financial (XLF -2.7%), with Banks ($BKX -2.8%) pulling the sector down, again largely on concerns of government legislation regarding their credit card business. Basic Materials (NYSEARCA:XLB), Energy (NYSEARCA:XLE), Healthcare (NYSEARCA:XLV) and Consumer Staples (NYSEARCA:XLP) made small gains.

The Cara 100 company stocks that lifted the most were: food processor Perdigao (PDA+9.5%), and a couple goldminers, Goldcorp (GG +7.4%) and Kinross (KGC +6.9%).

On Tuesday, poultry producer Perdigao (PDA 36.36, +3.15, +9.49%) said it planned to take over smaller Sadia (SDA 6.90, +0.52, +8.15%) in a stock swap, inking a long-rumored deal. The new company, called Brasil Foods, will use funds from a 4 billion reals ($1.9 billion) share offering to pay down short-term debt.

We also liked the quality of Sadia, so Brasil Foods, which will become the world's top exporter of processed meat and chicken, per the Associated Press, will stay in the Cara 100.

Earlier Thursday, prices were, for the most part, sharply lower across the markets in Asia Pacific and Europe. Japan’s Nikkei 225 (9,264.2 -0.86%), Aussie All Ordinaries (3,804.7 -0.11%), Hong Kong Hang Seng (17,199.5 -1.58%), Shanghai Composite (2,610.6 -1.54%) and India’s BSE 30 (13,736.5 -2.31%) all closed lower. Later in the European equity bourses, the French CAC (3,254.9 6:27AM ET -1.47%), German DAX (4,965.4 6:12AM ET -1.46%) and UK FTSE 100 (4,375.7 6:12AM ET -2.07%) were further down.

The US long Bond ($USB 122.45 +0.77 +0.63%) turned around after three days of losses. The 30-year (4.160 -0.47 -1.12%), 10-year (3.202 -0.41 -1.26%), and 5-year (2.035 -0.67 -3.19%) all dropped as money flowed out of equities into bonds and precious metals. Treasury bill yields (0.170 -0.05 -2.86%) were down a tad.

The $USD (81.14 -0.84 -1.02%) closed lower for the third straight day, while the Yen (105.38 +1.20 +1.15%), and the Euro (137.75 +1.50 +1.10%), Pound (157.52 +2.77 +1.79%), and Cdn Loonie (87.56 +1.05 +1.21%) were all stronger against the USD.

Crude Oil ($WTIC 62.04 +1.94 +3.23%) continued the move higher this week as the $USD dropped.

$GOLD futures, consistent with the falling $USD, lifted $20.00/oz over the past two days (938.30 +12.60 +1.36%).

Spot (cash) market prices earlier today were unremarkable, as follows: Gold (940.25 -1.20 -0.13% 06:28am ET), Palladium (233.0 +3.0 +1.30% 06:27am ET), Platinum (1146 -7 -0.61% 06:27am ET), and Silver (14.23 -0.12 -0.84% 06:27am ET), with a bit of weakness in the past hour as the Euro has turned a bit soft.

Earlier Thursday morning, the Euro futures were a tad stronger (1.3804 +0.0004 +0.03% 06:15am ET). However, the Crude Oil futures (60.825 -1.215 -1.98% 06:15am ET) were soft. Later, the Euro futures turned weak (1.3758 -0.0042 -0.30% 07:53am ET).

Stock futures for the DJIA were showing modest weakness early this morning (8366 -29 -0.34% 06:15am ET). By 7:55am, the DJIA futures had dropped to -45.