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Last Week’s Sell-Off Leaves U.S. Investors in Unfamiliar Territory
Friday’s sharp sell-off in U.S. stocks capped a week of heavy losses that has the market in the red for 2010. And that has investors wondering where U.S. stock prices are headed next.
On Friday, accelerating concerns about U.S. corporate earnings combined with newly emergent worries about China’s health hit stock prices hard. A 6% drop in the shares of Aloca Inc. (NYSE: AA) helped send the Dow Jones Industrial Average into a 216.90-point nosedive, a 2.1% decline that had it end the week at 10,172.98. The blue-chip average fell 4.1% for the week, its worst weekly performance since February of 2009.
The Standard & Poor’s 500 Index lost 24.72 points, or 2.2%, on Friday. It closed at 1,091.76 after losing 3.9% for the week. A slew of analyst downgrades on technology stocks on Friday sent the Nasdaq Composite Index down 60.41 points, or 2.7%, on Friday. It closed at 2,205.29, after losing 3.6% for the week.
MetLife Closing in on AIG’s Alico Unit
MetLife is reportedly negotiating to buy the American Life Insurance Co. from its parent American International Group Inc. (NYSE: AIG). The deal would give MetLife more exposure to Japan and assist AIG in paying back the billions of dollars it owes to the government.
Under the terms now being discussed, MetLife would pay $14 billion to $15 billion for American Life, commonly known as Alico, The New York Times reported. At least $9 billion of that sum would immediately go to the Federal Reserve Bank of New York to redeem preferred stock now being held in a special-purpose vehicle. Additional proceeds would go toward paying down part of a separate, $35 billion credit facility from the New York Fed.
Acquiring Alico would give MetLife a strong presence in Japan where an aging population offers fresh growth opportunities. Alico had about 200 offices, 4,600 consultants or employees, and 10,000 agencies in Japan as of March of last year, according to The Wall Street Journal. The company generates about 70% of its revenue from the Pacific island.
Housing Market Still in Shambles as Obama’s Loan Modification Program Falls Flat
Despite a concerted effort by the Obama administration to rebuild the housing market, it continues to languish. The government’s Home Affordable Modification Program (HAMP) failed to stymie foreclosures last year, and 2010 may not be any better.
Instead of declining, the number of foreclosed homes in the United States last year increased to a record 2.8 million, a 21% rise over 2008 and 120% over 2007, according to RealtyTrac. Foreclosures in the fourth quarter jumped 18% over the same period last year.
Not helping matters is HAMP, which was designed as an incentive for banks to restructure mortgage payments for homeowners facing foreclosures. The Obama administration set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.
Intel and JPMorgan Results Boost Fourth Quarter Earnings Season, but Market Swoons
Stock market bellwethers Intel Corp. (Nasdaq: INTC) and JPMorgan Chase & Co. (NYSE: JPM) gave earnings season a booster shot Friday when they released fourth-quarter results that exceeded analysts’ expectations.
And even though the market reacted negatively to the news — suffering its worst losses of the New Year — their results add positive momentum to an earnings season that is expected to provide an abundance of good news.
For the first time since the second quarter of 2007, fourth quarter earnings of stocks in the Standard & Poor’s 500 Index should be higher than they were the year before. That would break the longest losing streak since S&P began keeping track of operating earnings in 1991.
Two Ways to Profit From Wall Street’s “Soft Commodity” – Cotton
Some of the best investment opportunities can happen simply by ignoring the Wall Street herd and venturing onto the road less traveled.
Take such traditional "breakfast club" commodities as sugar, cocoa, coffee and orange juice. They all enjoyed a great year, despite bearish forecasts of doom and gloom. Sugar and cocoa even traded at multi-decade highs.
Similarly, cotton got a bad rap going into 2009, though it motored into the end of the year with a tidy profit, rising on the standard laws of supply and demand.
Number of the Day: With 13.6 Million Vehicles Sold Last Year, China Has Passed the U.S. as the World’s Largest Auto Market
China dethroned the United States as the world’s largest auto market in 2009 with 13.6 million vehicles sold. It’s the first time since Henry Ford’s assembly line created a mass market for cars and trucks last century that a country other than the United States led the world in auto sales.
China sold more cars than the United States every month last year, except for August when the popular “Cash-for-Clunkers” program bolstered U.S. sales. China’s auto sales, which also were boosted by government incentives, nearly doubled in December, rising 92% from a year earlier to 1.41 million vehicles, the China Association of Automobile Manufacturers said yesterday (Monday).
Roughly 10.4 million light vehicles were sold in the United States in 2009 – the lowest total since 1982 and a 21% decline from 2008. That number doesn’t include the sale of heavy commercial vehicles, whereas China’s total does. However, just 500,000 heavy commercial vehicles were sold the United States last year, CSM Worldwide analyst Yale Zhang told The Wall Street Journal. That would still leave U.S. sales short of China’s mark.
Latest Unemployment Numbers Prove There’s No Easy Way Out of a “Jobless Recovery”
The unemployment numbers reported by the Labor Department Friday are proof that despite recent optimism about the job market, the economy is still trudging through a jobless recovery. And it doesn’t look like the labor picture will improve anytime soon, either.
Employers unexpectedly shed 85,000 jobs in December, displaying a lack of confidence in the economic recovery and leaving the “official” unemployment rate at 10%.
However, the real rate of unemployment — which includes part- time workers who want full-time jobs and people who want work but have simply stopped looking — rose to 17.3% from 17.2%.
Geithner’s Fed Pressured AIG to Keep Quiet on “Back Door Bailouts”
The Federal Reserve Bank of New York, while headed by current Treasury Secretary Timothy Geithner, pressured American International Group Inc. (NYSE: AIG) to withhold information about payments it made to banks during the peak of the financial crisis, according to a report by Bloomberg News yesterday (Thursday).
A series of emails between the Federal bank and AIG lawyers show that the insurer was told to delete details from public disclosures about payments it made on credit default swaps to such banks as Goldman Sachs Group Inc. (NYSE: GS) and Deutsche Bank AG (NYSE: DB), which were settled for 100 cents on the dollar.
The swap payments, which totaled $62 billion and have been characterized as “back door bailouts” by some lawmakers, are at the center of allegations that Geithner failed to negotiate a better deal for taxpayers.
Number of the Day: At 84,000, Private-Sector Job Losses For December Are Less Than Expected
Is the U.S. jobs market finally ready to move in the right direction?
According to a national employment report released yesterday (Wednesday), that appears to be the case.
The U.S. economy lost an estimated 84,000 private-sector jobs in December, the smallest decline…
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