US markets Update and OutlookStocks at the mercy of nationalization debate
MarketWatch: U.S. stocks are likely to face choppy waters next week, as the debate about whether or not to nationalize banks intensifies along with growing investor demand to rid the financial system of its toxic assets.
"Financial markets appear to be fixated on 'toxic' assets, and until they are removed from bank balance sheets, pressure will remain on the sector," said Benjamin Reitzes, an analyst at BMO Capital Markets. It's a week full of home sales and real-estate data, and Ben Bernanke heads to Capitol Hill for two days of testimony. Home Depot, Dell and others report earnings, and Microsoft has annual strategy meeting. Such concerns have helped drive the Dow Jones Industrial Average to fresh six-year lows. For the week, the blue-chip average fell more than 6%, marking its worst week since October of last year. The broad S&P 500 index fell nearly 7% for the week, while the Nasdaq Composite lost 6%.
A big chunk of the pain came from the financial sector, where Bank of America sank to new lows and Citigroup fell to an 18-year low on Friday amid concern the government may take over the banks, wiping out their shareholders. Senate Banking Committee Chairman Christopher Dodd on Friday said banks may have to be nationalized for a short time, according to Bloomberg News. But Robert Gibbs, the White House press secretary, said the Obama administration supports a privately held banking system. While the comments seemed to help financial shares come off their lows Fridays, stocks on Wall Street have again taken a turn for the worse since last week after Treasury Secretary's Tim Geithner unveiled a plan to help ailing banks.
Many analysts complained that the plan was short on details, specifically, on how the government would deal with the toxic assets that have plagued banks' balance sheets and the financial system for more than a year and a half.
"Unless investors are somehow convinced the assets are worth more or banks are willing to sell for less, the only option might be broad nationalization," BMO's Reitzes said in a note. Yet, he added, it was that very "prospect that helped drive U.S. banking shares to their lowest level since the early 1990s this week."
Not all asset classes lost over the past week, as investors seeking a safe haven led gold to top $1,000 an ounce for the first time since March of 2008. Still, the lack of follow-through from gold mining stocks isn't sending much of a bullish signal, according to some analysts. As commodity prices have plunged over the past year, the materials sector, which includes the shares of mining and chemical firms, has seen its profits collapse. In the fourth quarter, profits in the sector are down 82% from the year-earlier period, making materials the second worst performing sector of the S&P 500, after financials.
Overall earnings are now expected to have fallen 42.1% for the fourth quarter, according to Thomson Financial. This would mark the worst earnings growth rate since Thomson began tracking earnings 10 years ago. "The weakness is now spread out across multiple sectors and it looks to continue at least through the third quarter," said John Butters, earnings analyst at Thomson.
The first quarter is looking increasingly grim, with the ratio of negative to positive company forecasts jumping to 5.9 to 1, compared with a usual ratio of 2 to 1 historically.
Whereas health care, consumer staples and the utilities sectors had still posted slight earnings growth in the fourth quarter, all 10 sectors of the S&P are now expected to see their earnings fall in the first quarter, according to Thomson.
Next week, another 51 S&P 500 companies will report results, including Dow component Home Depot another update on the housing market, with the December S&P/Case-Shiller Home Price Index, followed by a survey of consumer confidence in February by the Conference Board. And Fed Chairman Ben Bernanke will deliver his semiannual report on monetary policy and the state of the economy, at the Senate Banking Committee. Wednesday will bring existing home sales figures for January, followed by new home sales date on Thursday. Also on that day will be data on durable goods orders for January and weekly jobless claims. On Friday will be a February manufacturing survey from the Chicago region, followed by another February reading of consumer confidence, this time by the University of Michigan. Also on Friday, will be a second estimate of gross domestic production in the fourth quarter. "Weaker business inventory and trade data suggest the second estimate for the fourth quarter GDP [...] will show a meaningful downward revision to something around negative 5% from the initial estimate of negative 3.8%," said William Knapp, investment strategist at MainStay Investments.
Weekly KLSE Update and Outlook
StarBizWeek(MarketWatch): The local bourse could not make much progress despite breaking out of the 21-week simple moving average for the first time in 12 months a week earlier, as investors were not enthusiastic to take up new positions due to frail offshore leads. Instead, they opted to book profit.
Despite that, Bursa Malaysia was holding quite well given the trauma the US market had been through the past week.
According to the daily chart, the recent breakthrough in the CI appears a half-hearted move for now and going forward; Bursa may just be range-bound due to limited participation from investors amid a dearth of market-stimulating news.
In short, there is still no solid confirmation of the recent bullish reversal but we will continue to look out for that.
While the weekly MACD is firming, the daily MACD is at a risk of flashing a sell. Given the tricky technical reading, the key index may channel sideways pending a new lead to emerge. Support 886, 860-863 and 835. Resistance at 925, 936.63, 946-950, 963.
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