Thursday, January 8, 2009

Retail Slump, Obama Pump, Pain All Around

Stocks ended the day mixed, amid poor retail results and fear of huge job losses continuing through Spring. The overhanging fear of the government's Friday's Nonfarm Payroll report showing a second consecutive month of more than 500,000 job losses in December was palpable. Nevertheless, stocks rallied off mid-day lows for gains in all indices save the Dow.

Dow 8,742.46, -27.24 (0.31%)
NASDAQ 1,617.01, +17.95 (1.12%)
S&P 500 909.73, +3.08 (0.34%)
NYSE Composite 5,837.14, +38.09 (0.66%)

Retail sales for December were released by a variety of major chains, and the results, fully expected, showed mass declines, despite 50-7-% markdowns throughout the important holiday season. Among the highlights for same-store sales:

  • Wal-Mart was the only company reporting an increase in same-store sales, +1.2%

  • Costco -4%

  • Sears -7.3%

  • Macy's -4%

  • Saks Fifth Avenue -19.8%

  • Limited Brands -10%

  • Gap -14%

  • Abercrombie & Fitch -24%

  • Williams-Sonoma -24%

  • Dillard's -5%

  • Target -4.1%

  • Kohl's -1.4%

  • JC Penny's -8.1%

Well, as apples go, that's a bunch of bruised, rotting fruit.

Shortly after 11:00 am, President-elect Barack Obama issued a terse pre-inaugural speech on his proposed American Recovery and Reinvestment Plan (ARRP). Obama outlined plans to jump-start four major areas of interest: health care, education, energy and infrastructure. The ideas put forward included retrofitting federal buildings with smart or green-tech energy solutions, providing computers and technology to schools, money for road, bridge and building projects that are shovel-ready and in need of funding and computerization of medical records, to name just a few.

The ARRP also is proposed to include incentives to business, plus a $1000 tax break for "95% of middle class taxpayers." Obama directed his speech primarily to legislators in congress, urging them to put aside partisanship and special interests in favor of "what's good for America." The speech was short - about 15 minutes - and lacking in specifics, though one cannot fault the President-elect on that account, since he is not yet officially our head of state.

Markets, which had recovered from earlier declines, fell back into or further into the red. The Dow, in particular, remained underwater, sinking roughly 100 points by the end of the speech. It is entirely possible that Wall Street may not like what Obama is proposing, because he may actually take on the players, CEOs, regulators, crooks and criminals who caused the economic issues we are currently enduring. If Obama is true to his word, Wall Street firms will be forced to commit to more accountability and scrutiny than has existed for the past 20 years.

If the election of Barack Obama was a truly historic event, then his proposals may prove to be the kind of stimulus which at least limits the pain of the economic downturn and shortens its duration. That's about as much as we can hope for from a new president inheriting a set of economic conditions that are the worst in at least 80 years.

Change is surely in the wind, and Wall Street, already dead, may be setting up for the burial ritual in which financial firms and companies overloaded with debt are quickly dispatched, destroyed in value and liquidated. That is the message coming from Washington. Wall Street and the investment community would be wise to heed the headwinds blowing from the Potomac to the Hudson.

Obama's plan - depending on how badly congress distorts the original intent - is likely to be good for Main Street and ranging from neutral to bad for Wall Street. Tough luck for those who refuse to change, upgrade and grow into the 21st century.

There is still plenty of excess, overhang and waste that has yet to be discounted in the stocks which constitute the major indices, though all indications are that investors will seek more transparency and accountability from publicly-traded firms. The discounting mechanism that is the stock exchange should manage to squeeze out the remaining overvaluations.

On the day, advancing issues outflanked decliners, 4002-2574. New lows remained stubbornly ahead of hew highs, 87-27.

Volume remains light, likely a permanent feature in the new paradigm of the US stock markets until the economy begins to recover, at least. Many participants are sitting on the sidelines or seeking safer havens for their money. The associated rise in the number of bond issuance offers a clue to just how fearful or dissuaded investors have become,

NYSE Volume 1,196,486,000
NASDAQ Volume 2,011,787,000

Commodities were also mixed. Oil dipped 93 cents, to $41.70. Gold gained $12.80 to $854.50. Silver dropped a penny, closing at $11.10.

The upcoming Nonfarms Payroll report, due to be released at 8:30 Friday morning, may have already been discounted on Wednesday, when private payroll firm ADP announced their figure of 693,000 jobs lost in December. Thus, it's a 50-50 proposition on whether stocks will rally or sell-off tomorrow. ADP seems to have taken some of the sting out of the government report. Investor reaction should be more measured than normal.

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