If European policymakers were cats with nine lives, they must be getting close to exhausting that allotment because not much happened in Brussels last week. That was enough to keep the market humming last Friday, but not enough to stem big losses today. Moody's Investors Service and Fitch Ratings had less than choice words for the lack of result out of the EU summit last week. That coupled with some glum stock-specific headlines here in the U.S. led to losses of well over 1% for all three major indexes.
Say what you want about ratings agencies being late to the party and you will probably be correct, but Moody's was not shy in its assessment of European financials. The ratings agency said it will review all the credit ratings of all European nations acknowledging last week's summit accomplished a whole bunch of nothing.
While saying Europe remains ''prone to further shocks'' and the euro will remain pressured, Moody's said last week's accord does nothing to address the massive debt loads facing European countries. Of course, none of the ratings agency chatter was good for European bonds. According to Reuters: The yield on the benchmark Italian 10-year bond rose to 6.53 percent. Greece and Portugal were forced to seek bailouts from their creditors when their bond yields approached 7 percent.
And as bad news out of Europe normally does, it pressured riskier assets today. Caterpillar (CAT), Chevron (CVX) and Exxon Mobil (XOM) were among the Dow's worst offenders today, but the carnage was not contained to equities. Gold was no safe have. An almost 3% drop for the iShares Silver Trust (SLV) has that ETF in danger of dropping below $30 for the first time since October. Oil was taken to the woodshed as well with January West Texas Intermediate futures giving up 1.7%. Macro concerns clearly make it difficult for oil to hold the triple-digit area.
As I noted at the start, it was not a pretty day at the stock-specific level either. Take the curious case of Diamond Foods (DMND) as an example. I say this as someone that holds and intends to hold General Mills (GIS) for a while: Food stocks are pretty boring, but then again that is part of the allure as long as the dividend is reliable. Well, Diamond Foods has been anything but boring.
In fact, this company is a soap opera right and has been for at least a month now. I will try to give you the abridged version. Diamond wants to acquire the Pringles brand from Procter & Gamble (PG). That deal looked like it was going to happen until some shareholder suits popped up calling Diamond's accounting practices into question. That has delayed the Pringles deal. In November, several outlets reported that a Diamond director who was also a member of the board's audit committee took his own life. All that negative press sent the stock plunging and keep in mind, Diamond was a about as close as one could come to a growth stock in the food sector.
On Friday, a KeyBanc analyst said the inquiries into the company's accounting practices would probably end soon and that sent the stock up almost 53%. Then last night, a story appeared on the Wall Street Journal's Web site that said Diamond was doing some suspect things with payments to walnut growers. Today, the company said it is delaying the filing of its 10-Q.
â€œIn accordance with standard Nasdaq procedure, Diamond expects to receive a notice of deficiency from the Nasdaq Listing Qualifications Department, indicating that Diamond is not in compliance with Nasdaq Listing Rule 5250(c)(1). Diamond intends to submit a plan to regain compliance as quickly as possible. During this process, Diamond's common stock will continue to be listed and traded on The NASDAQ Global Select Market,â€ Diamond said in a statement.
The stock fell almost 23% today on volume that was more than seven times the daily average.
Diamond Foods Chart
Also following victim to a bad news, large volume decline was Dow component Intel (INTC). The world's largest semiconductor maker lowered its fourth-quarter revenue guidance due to flooding in Thailand that has hampered production of computer-related equipment. Intel lowered its fourth-quarter revenue guidance to $13.7 billion, give or take $300 million, down from a previous forecast of $14.7 billion. Analysts were expecting $14.65 billion.
Analysts expect the Thailand floods to reduce global hard drive production by a third this quarter. Intel said its customers are reducing their stock of chips in anticipation of the hard drive shortage continuing early next year, although it said it still expects sales of PCs to be up in the fourth quarter, Reuters reported.
The Intel news comes on top of a less-than-impressive guidance from Texas Instruments (TXN) last week and it sent shocks throughout the chip sector. TI was down another 3% today while AMD was down 4.3%. The Semiconductor HOLDRs fell 3.1%. TI and Intel account for over 40% of that ETF's weight.
The big problem with the Intel news is that we are on the cusp of another earnings season and if they were not previously, concerns are now swirling that other companies, regardless of sector, are going to be issuing downbeat guidance in the coming weeks.
That remains to be seen, but there was some good news for select stocks on Monday. Just two Dow stocks finished the day higher, Walt Disney (DIS) and McDonald's (MCD) with the latter making yet another 52- week high. Man, my dad told me to buy MCD a while ago. I should have listened. Pfizer (PFE) finished the day in the red, but the Dow component did say it is raising its quarterly dividend 10% to 22 cents a share from 20 cents and boosting its share repurchase plans by $10 billion. The company said it plans to buyback $5 billion of its own stock next year.
One of the days stalwarts was aggregates producer Vulcan Materials (VMC), which surged 15.4% after receiving a a hostile $4.8 billion all-stock offer from smaller rival Martin Marietta Materials (MLM). In the go-go days of the U.S. housing market, these were awesome stocks, but in the past two years, MLM is down over 16% while Vulcan has plunged more than 30%.
As the Wall Street Journal reported, Martin Marietta is using a logical approach to try to woo Vulcan shareholders: Cost-savings and the dividend. The combined company could save $250 million annually and Martin Marietta offers a better, safe dividend. Vulcan used to pay 25 cents per quarter, but that was recently cut to the princely sum of a penny per quarter. That works out to four cents a year. MLM's current payout is $1.60 per share per year. That seems to be a sound argument, at least to me.
Vulcan Materials Chart
Looking at the charts, the S&P 500 closed just over 1236, meaning the index closed just above support at 1235. If 1235 does not hold, the next stopping points would be 1225, 1200 and 1185 on the dowside. Resistance is 1265, 1295 and then 1350. It is going to take the absence of bad news from Europe for the S&P 500 to get to 1350 or higher by year-end.
S&P 500 Chart
The Dow has a moderately more attractive chart than the S&P 500 and at least the Dow can say it is still above its 50- and 200-day moving averages. The Dow was able to remain above support at 12,00 at the close today and in this topsy-turvy environment, could easily make a run back to resistance at 12,230 any day now. However, if that is going to happen, McDonald's cannot do all the work alone. Caterpillar remains below its 200-day line and CVX could drop below there as well with a couple of bad days. If those stocks stay in their funk, the Dow probably is not going anywhere.
I keep hearing that is the time of year to own growth and discretionary stocks, but the Nasdaq is not confirming that theory at the moment. Even with a sharp decline today, the Nasdaq remained above critical support at 2600. A drop below there would likely mean accelerated selling with no rest until 2500 or below. Resistance is 2670.
I apologize for being so brief this week, but I have a nasty cold. I will leave you with an interesting factoid though: On this day in 1979 gold closed at what was then a record $462.50 an ounce. Gold bugs have a come a long way.
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