The sell-off continues. Stocks plunge again for the "worst" day of this new year. The S&P 500 and the NASDAQ composite briefly traded in negative territory for the year. Once again investors are worried about China tightening its monetary policy and applying the brakes to its economy. Meanwhile Wall Street was spooked by harsh words and new regulations proposed by President Obama this morning, which sent some of the big name financials plummeting lower. Adding fuel to the fire today was a disappointing Philly Fed survey and worse than expected weekly jobless claims.
Asian markets were mixed. The Japanese NIKKEI managed a bounce from support near the 10,600 level and closed up 1.2%. The Chinese Shanghai index produced a minor oversold bounce with a 0.2% gain. The Hong Kong Hang Seng produced another big decline falling 1.99% on the session. China released their latest GDP numbers, which rose from +8.9% growth in Q3 to +10.7% growth in Q4. Economists were expecting +10.9% growth. China's government is worried that the economy could be overheating and local media is reporting that authorities could be close to another round of tightening their monetary policy.
European markets were drifting sideways but in positive territory. That changed late in the session. I don't know whether it was Obama's comments or the jobless numbers in the U.S. but stocks tanked late in the session. Bankers were hammered with European indices falling to new one-month lows. The miners suffered from weak metal prices and a new tax proposed by Australia that would target mining firms. The English FTSE gave up 1.58%. Both the German DAX and the French CAC-40 lost 1.7%.
President Obama's comments on the banks was the big story today. He proposed new rules and regulations to limit the type of trading banks can do. Here's a quote, "Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers." That's really bad news for companies like Goldman Sachs (GS), Morgan Stanley (MS) and J.P.Morgan Chase (JPM), all of who have significant proprietary trading operations.
You can see the impact Obama's comments had on shares of GS. The company reported earnings this morning. Wall Street was expecting a profit of $5.20 a share. GS blew away the numbers with a profit of $8.20 a share. Net profits were boosted in the fourth quarter because GS cut back on their employee compensation even though GS paid out $16.2 billion to employees last year, which is up 47% from 2008. Goldman has been able to generate huge returns with its proprietary trading, which fueled a significant chunk of its $13.4 billion profits for all of 2009. In comparison the top five big banks combined earned $15 billion in profits last year (source: Reuters). Obama's comments have investors worried and bank stocks are down. Shares of GS spiked to $171.00 this morning but the stock is currently down 5.4% near its 200-dma around $158. Shares of MS are down 4.9% and JPM is down 5.9%.
In other news the economic data out this morning was not positive. The Federal Reserve Bank of Philadelphia released their general economic index, which fell from 22.5 in December to 15.2 in January. Economists were expecting a drop to 18.0. Readings above zero indicate growth. On a positive note the employment component of this index jumped from 4.5 in December to 6.1 in January, the highest level in over a year. Another disappointing number was the weekly initial jobless claims, which rose 36,000 to 482,000 last week. Analysts were actually expecting initial claims to drop. The four-week moving average rose for the first time in five months.
In the last 30 minutes the S&P 500 has started to turn lower again. The S&P 500 is nearing technical support at its 50-dma. The NASDAQ composite is near its 30-dma. The Dow Industrials have broken down through their 50-dma. The Russell 2000 is trying to bounce from its 30-dma. The Transportation index is flirting with a breakdown under its 50-dma. Some of the worst performers today are the gold miners (-3.9%), cyclicals (-3.4%), defense stocks (-2.1%), healthcare (-2.4%) and insurance (-2.0%). The dollar's intraday strength has faded to a fractional loss. Gold futures are down more than $8 to $1,104 an ounce. Oil futures are down more than 1.6% to $76.44 on a bearish inventory report.
Internet advertising giant Google (GOOG) is due to report earnings after the closing bell tonight. Wall Street expects a profit of $6.50 a share.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
It's not a good day for the bulls and our play list is trading lower with the market. BAX, FUQI, and YZC have hit our stop loss.