Broadgate: Market News 6/12
6 December 2012
A volatile trading session ended with U.S.stocks mostly higher on Wednesday, even as Apple, the most valuable company in the United States, suffered its worst day of losses in almost four years.
In a strange occurrence, Apple accounted for the entirety of the Nasdaq 100’s .NDX fall of 1.1 percent, while the Dow industrials – which do not include Apple as a component – enjoyed the best day since November 28.
With the drop, Apple shed nearly $35 billion in market capitalization, its biggest one-day market-cap loss ever. The company’s market value, or market capitalization, now stands at $506.85 billion.
“Today’s move is because of index weightings, with the Nasdaq down because of Apple’s decline,” said Rex Macey, chief investment officer of Wilmington Trust in Atlanta. “The S&P is up because Apple isn’t as big a weight in that index, and the Dow is up even more because it isn’t there at all.”
The broad market seesawed, with the S&P 500 dropping into negative territory before it rebounded off the 1,400 level, seen as a key support point over the past two weeks. Investors cited comments from President Barack Obama suggesting a potential near-term resolution to the “fiscal cliff” wrangling in Washington as a catalyst for the rebound.
Shares of The Travelers Cos Inc rose 4.9 percent to $74. The stock ranked as the Dow’s top percentage gainer after the insurance company said it intended to resume stock buybacks it had temporarily suspended while it assessed its exposure to Superstorm Sandy. The company also said a preliminary estimate of net losses from Sandy was about $650 million after tax.
The Dow Jones industrial average rose 82.71 points, or 0.64 percent, to 13,034.49 at the close. The Standard & Poor’s 500 Index gained 2.23 points, or 0.16 percent, to 1,409.28. But the Nasdaq Composite Index fell 22.99 points, or 0.77 percent, to end at 2,973.70.
Apple, the largest U.S. company by market capitalization and a big weight in both the S&P 500 and the Nasdaq, fell 6.4 percent to $538.79. Apple is down more than 20 percent from an all-time high reached in late September, putting the stock into bear market territory.
Banking shares were led higher by a 6.3 percent jump in Citigroup to $36.46 after the company said it would cut 4 percent of its workforce. The S&P financial sector index climbed 1.3 percent, and Bank of America hit a 52-week high of $10.55 before pulling back slightly. The stock, a Dow component, ended at $10.46, up 5.7 percent for the day.
Cyclical sectors, which are tied to the pace of economic growth, rallied on optimism about progress on a solution to avoid the fiscal cliff. An S&P index of industrial stocks rose 1.1 percent, buoyed by Caterpillar Inc, up 2.2 percent at $86.05, while an S&P index of energy shares climbed 0.7 percent. The Dow Jones Transportation Average gained 0.9 percent, with CSX Corp jumping 2.7 percent to $20.16.
Still, Apple struggled throughout the session. Market participants cited a host of reasons for the drop in the iPad maker’s stock, including a consultant’s report about the company losing share in the tablet market and reports that margin requirements had been raised by at least one clearing firm, as well as year-end tax selling ahead of a possible rise in capital-gains tax rates next year.
On the Washington front, Obama told the Business Roundtable, a group of chief executives, on Wednesday that a fiscal cliff deal was possible “in about a week” if Republicans acknowledged the need to raise taxes on the wealthiest Americans.
Equities have struggled to gain ground recently because of concerns over the fiscal cliff – a series of mandatory spending cuts and tax increases effective in early January that could push the U.S.economy into recession next year. Recently equities have moved on any whiffs of sentiment from Washington in headlines about negotiations.
“Obama’s comments generated a lot of optimism, but to the extent the market believes them, that’s how much we’re setting ourselves up for a decline if that deadline passes with no progress,” said Macey, who helps oversee about $20 billion in assets.
In an interview on CNBC after the market closed, U.S. Treasury Secretary Tim Geithner said that uncertainty over the fiscal cliff was standing in the way of stronger economic growth, and that there was no prospect for an agreement if tax rates didn’t rise on the wealthiest taxpayers.
The stock of Freeport-McMoRan Copper & Gold Inc fell 16 percent to $32.17 and ranked as the S&P 500’s biggest percentage decliner. The company said it was acquiring Plains Exploration & Production Co and McMoRan Exploration Co in two separate deals for $9 billion in cash and stock in a major expansion into energy.
McMoRan Exploration soared 87 percent to $15.82 and Plains surged 23.4 percent to $44.50.
About half of the stocks traded on the New York Stock Exchange closed in positive territory, while about 54 percent of Nasdaq-listed shares ended lower.
Volume was higher than it has been in recent sessions, with about 6.93 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, above the daily average so far this year of about 6.48 billion shares.
The euro slipped in Asian trade on Thursday, moving further away from both a seven-week high against the dollar and a 7-1/2-month high against the yen hit in the previous session, as investors awaited a European Central Bank policy meeting.
The ECB is widely expected to keep rates on hold at 0.75 percent at its policy meeting on Thursday. Investors will look for clues about whether ECB President Mario Draghi will show a greater willingness to cut borrowing costs in the future.
“Ahead of the ECB meeting, the dollar and yen are being bought back after the euro’s rise,’ said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
The longer term outlook for the yen was undermined by expectations of pressure on the Bank of Japan to take further easing steps following the election on December 16.
The latest Japanese polls on Thursday showed Shinzo Abe’s opposition Liberal Democratic Party on track to secure a majority.
“Polls today showed the LDP is expected to do well, which suggests downside for the yen,” Ino said. “Comments from the BOJ’s Nishimura yesterday suggested that the bank is considering further easing even with the election outcome yet unknown.”
BOJ Deputy Governor Kiyohiko Nishimura said on Wednesday the central bank will debate whether its monetary easing in September and October was enough to support the economy, which may be undershooting its projections.
The expected change of government and prospects of drastic easing will weaken the safe-haven yen further over the next year, according to the latest Reuters poll for December.
“Politically, LDP leader Abe has softened his aggressive stance on monetary policy. However, we remain bearish on JPY over the medium term, and will look to increase our JPY short once positioning looks less stretched,” analysts at Citigroup wrote in a note.
Citi has reduced its underweight yen position primarily because currency traders have become increasingly short since mid-November.
The euro rose as high as $1.3127 on Wednesday on the EBS trading platform, its highest since mid-October. It was last buying $1.3056, down about 0.1 percent from late U.S. levels.
The euro will probably hold its value against the dollar over the next month after rallying over the last few weeks, but a persistently weak euro zone economy will put it under pressure next year, according to the latest Reuters poll.
The euro was also down about 0.1 percent against the yen to 107.74 yen, after hitting a 7 1/2-month high of 107.95 yen on Wednesday.
The yen was slightly down against the dollar, which last stood at 82.52 yen, well shy of its 7-1/2 month high of 82.84 yen hit last month.
The Australian dollar jumped against its U.S. counterpart after a surprisingly strong jobs report prompted investors to reduce expectations of further policy easing.
The Aussie hit a session high of $1.0480, close to a two-month peak of $1.0491 hit last week, to last trade at $1.0472, up about 0.2 percent on the day.
Net new job creation beat expectations and the jobless rate dropped to a three-month low of 5.2 percent, confounding expectations of a rise to 5.5 percent.
The Reserve Bank of Australia (RBA) reduced its key cash rate by a quarter point this week, taking it back to a record low of 3 percent last seen during the global financial crisis.
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