Wall Street pared earlier gains this afternoon, after the Financial Crisis Inquiry Commission (FCIC) issued a subpoena to Goldman Sachs, reviving another wave of selling pressure.
The FCIC today slapped Goldman Sachs with a subpoena, saying the bank failed to comply with the panel's request for documents and interviews in a timely manner. The news rattled the banking sector, sending Goldman’s shares down 0.8% to $141.08.
‘It’s a surprise why Goldman wouldn’t comply; it’s an easy thing and it makes you wonder why,’ said Matt McCormick of Bahl & Gaynor. ‘If you get surprising bad news, which I would call this Goldman thing, the market doesn’t like it. But the market is also digesting the payroll numbers and concerns that our economy is not picking up.’ [1]
Sector peer JPMorgan fell 0.32% to $37.5, Morgan Stanley declined 0.92% to $25.75 while Citigroup and Bank of America lost between 2.3% and 2.6% respectively.
By 4pm (London time) the Dow Jones spread was trading around 9907.34, representing a 24.63 point (-0.51%) decline from Friday’s close. In addition, the broader S+P 500 spread retreated 3.44 points (-0.59%) to 1061.44 and the Nasdaq spread declined 13.71 points (-0.72%) to 1818.33.
A surprise jump in German factory orders had initially helped US equities rise today. With all the negative news spilling out of Europe recently a much needed boost was received this morning with better-than-expected factory orders being released from Europe’s largest economy.
German factory orders reportedly jumped to 2.8% in April, beating the 0.4% decline shown in a Bloomberg survey of estimates. The encouraging result is one of the benefits of the falling euro, and it may set the trend for further boosts to export demand, particularly as the current trajectory for the euro is still downward.
The recent G20 meeting held in South Korea over the weekend did little to provide investors with any comfort regarding the global recovery. While some breakthroughs were made in the sense that leaders are starting to realise that throwing money at the deficit issues won’t appease the markets anymore, the disturbing reality is that there is no clear guidance on how to improve the situation at this juncture. With monetary policy exhausted, the only way forward seems to be via fiscal austerity it seems, which risks derailing growth.
Although it may be difficult to fathom, there are still some positive signs in the market. According to data from Bloomberg, put option activity has climbed recently. Christopher Metli at Morgan Stanley commented that the market’s are ‘telling you that investors are still bullish, and they’re hanging onto their positions, but they’re protecting through options’. [2]
Wayne Lin from Legg Mason believes ‘it could be a buying opportunity. Stocks are at good value. Earnings are growing fairly strongly. Economic fundamentals are still strong, especially for the US, making it possible that the risks are overblown.’ [3] This idea has also been supported by JP Morgan Chase which predicts the S&P 500 will reach 1300 by year end, or a 22% gain from last Friday’s close. ‘This is probably going to prove to be a very good entry point’ according to Thomas Lee from JP Morgan Chase. [4]
Meanwhile, pharmaceutical company Bristol-Myers Squibb rallied 6.15% to $23.82 this afternoon after Goldman Sachs upgraded the company from ‘neutral’ to ‘buy’. The revision is a result of meaningful upside potential from their new Ipilimumab drug.
On the tail-end of the S&P 500 today was CVS Caremark, which lost 9.65% to $30.53 after losing support from one of its key customers in participating in its pharmacy benefit manager for new prescription drugs. Walgreen, the largest US drugstore chain announced that it won’t participate in the plan, as it deemed the partnership as not being in the best interests of customers, pharmacists or shareholders. Shares in Walgreen slumped 2.46% to $52.81.
According to Barron’s, Texas Instruments has a 40% upside potential as they are poised to gain market share in the analog and embedded application chips market. The stock was only marginally up in trading today, adding 0.30% to $24.25. Also in the technology sector, Sprint Nextel Corp gained 3.56% to $4.95 off the back of record sales of its new Evo phone.
Later today at the annual developers conference in San Francisco it is widely expected that Apple with unveil its new fourth-generation iPhone handset. Over the past year Apple’s CEO Steve Jobs has used this conference to launch new models of the iPhone. With the launch of the new iPad rolling out globally, the introduction of a new iPhone handset will be a nice addition to Apple’s product range. Apple’s shares fell 0.48% to $254.73.
Source: [1] Bloomberg News (7 June 2010)
Source: [2] Bloomberg News (7 June 2010)
Source: [3] Bloomberg News (7 June 2010)
Source: [4] Wall Street Journal (7 June 2010)
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