The U.S. markets are closed this coming Monday and investors are taking profits ahead of the long weekend. Traders were disappointed by JPM's sharp increase in loan loss reserves and cautious comments from CEO Jamie Dimon. Economic data out this morning was mixed with improving manufacturing data offset by negative consumer sentiment numbers. Investors were also selling the news in shares of Intel following last night's earnings report. There appears to be a flight to safety with a rally in bonds and the U.S. dollar.
Foreign markets were mixed. Asia was mostly higher. The Japanese NIKKEI delivered a 0.6% gain and another 15-month high. This was the seventh weekly gain in a row for the NIKKEI, which is approaching round-number, psychological resistance at the 11,000 mark. The Chinese Shanghai index gained 0.27%. The Hong Kong Hang Seng continues to struggle with a 0.29% loss and its fourth decline in a row. Stocks were weaker in Europe. Most of the major European bourses were down across the board due influenced by negative U.S. consumer sentiment and rising concerns over Greece's budget deficit. The English FTSE fell 0.78%. The French CAC-40 lost 1.53%. The German DAX slipped 1.89%.
The fourth-quarter earnings report from J.P.Morgan Chase (JPM) was the big story today. Wall Street expected a profit of 61 cents a share compared to a profit of 6 cents a share a year ago. JPM blew away the numbers with a profit of 74 cents ($3.3 billion) but revenues failed to meet expectations. JPM said revenues rose just over 32% to $25.24 billion in the quarter but analysts were expecting $26.8 billion.
The bank is considered "best in breed" by many and expectations were building that JPM would show an improvement in its delinquencies and loan losses reserves. Unfortunately, JPM raised its fourth-quarter mortgage loan losses reserves to $4.2 billion compared to just $653 million a year ago. Commercial banking loan loss reserves jumped from $190 million to $494 million. The performance in prime mortgages was ominous with JPM raising its net charge-offs to $568 million up from $195 million a year ago. This sharp increase doesn't bode well for the rest of the banking sector.
JPM's CEO Jamie Dimon is highly respected on Wall Street and investors were disappointed with his cautious comments for 2010. He said there were some positive signs in the economy but consumer-credit costs were high and the economy is still struggling with high unemployment and a very weak housing market. Mr. Dimon didn't tell us anything we didn't already know, which only added to the market's disappointment. Shares of JPM are off 1.8% near $43.85. The BKX banking index is down 2.1% and the BIX index is down 2.6%.
While I'm on the subject of corporate earnings you've already heard that Intel's report last night was very bullish. Yet the stock is down 2.3% and the SOX semiconductor index is down 3.3%. It's normal for investors to sell the news but today the worry for Intel is that the company could be "peaking". A few analysts feel that Intel just reported its best, most profitable quarter in the company's history and it's a quarter that will be extremely hard to beat or repeat.
There were a number of economic reports out today from wages, industrial output, the NY Fed, capacity utilization, the CPI, and consumer sentiment. Let's run through them really quick. The Labor Department said inflation-adjusted wages dropped 1.6% in 2009, which was the worst decline since 1990 and under the inflation rate at 2.7%. Naturally this doesn't bode well for consumer spending, which incidentally showed a decline in December.
December's industrial output came in at +0.6%, which was in line with expectations. Factory production was down but a cold spell produced a 5.9% jump in utilities. This was the sixth monthly increase in a row but output was down 2% compared to a year ago. The New York Fed released their Empire State (manufacturing) index, which soared from 4.5 in December to 15.9 in January. Readings over zero indicate growth and expansion. Capacity utilization hit 72% in December up from 71.5% in November and slightly better than forecast.
The Labor Department also released the Consumer Price Index (CPI), which rose 0.1% in December. The "core" CPI, which excludes the more volatile food and energy prices, also rose 0.1%. The bigger report today was the Reuters/University of Michigan preliminary consumer sentiment index for January. Economists were expecting consumer sentiment to rise to 74.0. This morning's report showed an increase from 72.5 in December to 72.8 in January. The expectations component asking consumers for their six-month outlook dropped from 68.9 to 67.5.
Overall stocks are down across the board. The S&P 500 is off 1.3% and near 1133. The NASDAQ composite is down 1.4% and touching its 21-dma. The Dow Industrials are down 1.2% and back under the 10,600 level. The Russell 2000 index is down 1.69% and falling toward the bottom of its recent trading range. The transports are off 1.4%. The SOX semiconductor index is down 3.3% and breaking through short-term support near the 350 level and its 30-dma. Strength in the dollar is pushing commodities lower. Gold futures are off more than $10 near $1,132 an ounce. Oil futures are down over a $1 to $78.37 a barrel marking oil's fifth decline in a row.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
With the market in a widespread decline it's only natural that our play list is seeing a pull back. AAPL is off 1.2% and near this week's lows. Shares of CAT have pulled back toward round-number support near $60.00. ESRX has completely reversed the gains from the last two sessions. Shares of GS have hit our stop loss at $164.95. UNH continues to show relative strength and hit new highs near $34 this morning. Railroad stock UNP is dipping toward round-number support near $65.00.