Stocks are sharply down Tuesday, with the Dow down 1.6% and the Nasdaq down 2.5%.
While this is being called a correction, it certainly has many investors concerned, but the main concern is the damage done to emerging markets and, in particular China, which appears to have quite a way to go before hitting bottom.
Risk-averse investors should take note, however, that volatile times are among us, and there are safer bets than the current buying opportunities presented by the recent declines.
According to the New York Times Online edition, the SEC has sent letters of inquiry to four major investment banks: UBS, Merrill Lynch, Morgan Stanley, and Deutsche Bank. The letters apparently request all stock and options trading activity for the last two weeks of September, the close of the third quarter.
Presumably, the SEC is looking into large block trades to try to determine if certain traders or hedge funds were able to access this data before trades were executed. Prior knowledge of large market-moving trades would put an individual trader at an advantage by knowing how the market will react before it is actually affected.
The investigation seems to be focusing on whether large brokers are tipping off preferred clients (or insiders at the bank who may be trading independently) before executing large orders.
In unrelated news, RenaissanceRe has settled securities fraud charges with the SEC by agreeing to retain an independent consultant and pay a fine of $15 million. RenRe’s fraud involved a phantom transaction for $26 million that allowed the company to defer revenues from 2001 to 2002 and 2003. You can read the whole article at the SEC’s website.
Crude oil rose over 5% and Natural Gas was up as high as 12% on news that the winter in the United States is about to get colder, and talk that Saudi Arabia may curb oil production. It is likely that this surge is not over, and many economists feel it may develop into a long-term trend toward $60-plus per barrel, considering not only consumer demand during the summer, but also investor demand during the hurricane season.
The Federal Reserve began its policy meeting today and is expected to keep interest rates stable. Numerous statements have indicated that core inflation is at an acceptable level and a recession is not likely. Fed officials have recently stated that rates are “well-positioned” for any unexpected events in the near future.
The Census Bureau released a report today that 2.1 million homes were vacant at the end of 2006, representing 2.7% of all owned units. That is the highest vacancy rate in over 50 years.
2006 will not be remembered the year of the bust, as the median home price came in well above $150,000 for the first time ever.
Rental prices also had a record year, topping $700 per month on average across the United States for the first time ever in the fourth quarter.
The report is further evidence that the housing bubble has not yet reached its trough, as supply is clearly outstripping demand. It is highly likely that this kind of vacancy rate will lead to fewer housing starts and lower bottom lines for homebuilders nationwide, as a buyers market opens regionally.
Details of the report can be found at census.gov.
Tuesday, Proctor and Gamble (PG) is expected to report a 15% increase in profits.
Wednesday, Google (GOOG) is expected to post an 88% increase in quarterly revenues.
Thursday, Exxon Mobil (XOM) is expected to report decreased earnings on lower oil prices and increased exploration costs.
Friday, Chevron (CVX) is also expected to post decreased earnings as the sector braces itself for volatile prices.
Also on Friday, the Labor Department will report its December nonfarm payrolls. The report is expected to be a key indicator of the effect the weakening housing market will have on the larger economy, since an excess decrease in payrolls is likely to be due to decreased home building.
Wednesday, the Fed will end its policy meeting, and most economists are expecting rates to remain unchanged at 5.25%. Though the economy seems to be growing at an acceptable rate, inflation pressures are likely to be a major discussion, and possibly cause for a rate increase.
Firday’s markets ended mixed, with heavy downward pressure over macroeconomic trends,
such as the housing market and the spectre of oil at $70/barrel. The Nasdaq ended up 0.1% while the S&P 500 and the Dow dropped by 0.1%.
During trading, 10-year US Treasury bond yields rose above 4.9% for the first time since mid-August. At the close of trading the 10-year bonds were at 98 1/32, with a yield of 4.879%, up from yesterday’s close at 4.867%.
Volatility in the bond market has led to uncertainty on the Street, particularly financials, consumer goods and housing stocks, which are heavily affected by rate fluctuations.
The National Association of Realtors announced a sharp drop in existing home sales in December 2006. According to the report, existing home sales fell by over eight percent in 2006. Also, a number of homebuilders released sobering forecasts for 2007.
Heavy selling in the bond market led to the highest yields in five months. The 10-year Treasury finished the day at 98 3/32, with its yield at a lofty 4.867%.
Turbulence in the housing and bond markets seeped into the broader market, sending the Dow down 1%, while the S&P 500 and the Nasdaq slipped by 1.1% and 1.3%, respectively.
The day’s winners were eBay and Nokia, up 8.2% and 4.5%, respectively. eBay posted sales growth of 29% while Nokia announced a 19% increase in profits.
In a word, no.
The OTCBB is an unregulated system by which broker/dealers and market makers can quote current prices for securities (ticker suffix .ob) which are not listed on one of the major exchanges.
The National Association of Securities Dealers oversees the OTCBB, but it is not a part of the Nasdaq exchange, as penny stock scams sometimes imply.
The OTCBB does require its listed companies to file updated financial reports with the SEC. Many people confuse this with SEC regulation: they figure that since they have to file with the SEC, then they must be regulated. But simply filing something with the SEC does not mean the SEC will do anything with it. Rather, it is the OTCBB itself that requires this of its companies. Any OTCBB traded company that fails to comply with this will be de-listed from the service, and will then likely trade on another exchange, such as the pink sheets.
Companies listed on the pink sheets (ticker suffix .pk) are not required to file current reports, so finding reliable information on them is very difficult.
While it is true that some of the best performing stocks are OTC and pink sheets, they are very risky, since it is so difficult to adequately research their financial health.
Shares of Yahoo stock jumped 7.57% on Wednesday to close at $29.00 on news that Panama, its new advertising filter, will be rolling out February 5.
The news is good for Y!, in that it will increase the number of ad-clicks per search (therefore increasing revenue), but it seems a bit early to be declaring victory for Yahoo.
Google, by all accounts is the market leader in search, reportedly claiming nearly 50% of all online searches (source: Comscore). While an increase in Yahoo’s bottom line would help, it’s not likely to change the dynamics of search for the next year. Indeed, it will likely take six to nine months for advertisers to get used to and adequately optimize their advertisements for the new system.
Over that time, the search wars are likely to heat up, as Microsoft increases its efforts and Wikipedia founders launch and develop Wikiseek.
Indeed, Panama will be good news for Yahoo shareholders. But 7% in one day is a bit much for number two. While it may rise again tomorrow due to momentum trading, I would expect it to lower before the end of the week, giving back about half of today’s gains.
Better-than-expected results from Texas Instruments helped boot techs for an end of day rally Tuesday, with investors showing signs of easing tensions regarding the sector’s recent performance.
United Technologies performed well, as did Boeing and Caterpillar, which both sold off yesterday, showing a strong support for Blue Chips.