Stock Market News for June 23, 2009
Asian stocks dropped sharply amid worries about the potential for an economic recovery. In Tokyo, the Nikkei 225 stock average closed down 2.8% and the Hang Seng Index in Hong Kong declined 2.9%; South Korea’s Kospi lost 2.8%. Commodities slumped following World Bank’s forecast for a deeper recession. Demand for Japanese yen rose.
After yesterday’s pullback, US stock futures suggest markets would recover slightly. Futures on the Dow Jones Industrial Average futures were up about 24 points. S&P 500 and NASDAQ futures also rose.
Worries that green shoots are increasingly turning into yellow ones and World Bank’s assessment that the recession will be deeper than earlier forecast dragged US stocks broadly lower Monday. Wall Street witnessed a broad sell off and prices of commodities like crude oil, copper and gold slumped. The S&P 500 index recorded its steepest fall in two months, dragged lower by economically sensitive sectors such as financials, energy and materials. The index retreated below its 200-day moving average and went into the negative territory for the year. Among 30 of the Dow Jones Industrial Average components, 27 recorded declines as the index dropped 200 points, or 2.35%, after a report by the World Bank said prospects for the global economy remain “unusually uncertain.” The DJIA’s fall was its sharpest since April 20. Market’s measure of volatility, the CBOE Vix, jumped 11% to 31.17. The NASDAQ, although still up 12% year to date, declined 3.4%.
Casting a doubt on the economic recovery, the World Bank said the global economy will shrink by 2.9% this year and warned unemployment and poverty will rise in developing countries. The multilateral lender had earlier predicted global economy to contract at a 1.7% rate. To add to the gloom, Economist Nouriel Roubini, who predicted the financial crisis, warned that the global economy might suffer another slump due to the potential “double whammy” of spiraling energy costs and widening fiscal deficit.
Basic material shares suffered on fears that Chinese demand for commodities is leveling off. Freeport-McMoRan (NYSE:FCX - Analyst Report) declined 11%; Alcoa (NYSE:AA - Snapshot Report) declined 8.9% and U.S. Steel (NYSE:X - Analyst Report) plunged 9%. Financials also took a beating, following lowered economic growth projections, with Bank of America (NYSE:BAC - Analyst Report) and KeyCorp (NYSE:KEY - Analyst Report) declining more than 9% and JP Morgan (NYSE:JPM - Analyst Report) plunging 6%. American Express (NYSE:AXP - Analyst Report) shares fell 5.7%. Lower demand assumptions also hurt oil and gas stocks, with Murphy Oil (NYSE:MUR - Snapshot Report) down 7.7%, Marathon Oil (NYSE:MRO - Analyst Report) off 6.1%, and ConocoPhillips (NYSE:COP - Analyst Report) recording a 5.9% decline.
However, US dollar and Treasuries attracted buyers with their safe-haven appeal, and traders brushed off the supply risks of the record $104 billion note auctions scheduled for the week. Copper prices, off 5%, declined to three-week lows and oil dropped 3.8% to $66.93. Gold prices fell 1.2% to $921, reflecting economic growth concerns.
The FOMC meeting begins today, with discussions on exit strategy plans, talks of the adverse impact of higher yields on a nascent recovery, hyperinflation fears, and dwindling confidence in the recovery likely to come up. The final communiqué, while unlikely to show any interest rate adjustments, will be read closely for any language shift in economic assumptions.