Stocks Erase Weekly Gains on Dubai's Woes

Published on Friday, 27 November 2009 15:44 Written by Gerard Lerod

Weston, Nov 13 (Tradershuddle.com) – Stocks finished mostly flat for the shortened holiday week. Mixed economic reports were enough for investors to push the Dow and the S&P 500 to new 13-month highs, as the Dollar fell. Dubai’s announcement of debt moratorium late on Wednesday rattled global investors, sparking a retreat, which erased the week gains.

For the week, the S&P 500 still gained 0.01%. The Dow fell 0.08%, practically flat, while the NASDAQ lost 0.35%.

At the start of the week, stocks pushed higher out of the gate buoyed by a better than expected existing home sales report and a global rally. Speculation that central bankers will keep interest rates low provided an extra boost to the market. The rally was broad based with 28 of the 30 Dow components finishing higher. All 10 industry groups in the S&P 500 advanced, led by technology, telephone and financials.

Existing-home sales jumped 10.1% in October to their highest level since 2007, handily beating economists’ expectations of an increase of 2.3%. The expiring first time home buyer’s tax credit was credited as one of the major culprits of this move, with congress extending the benefit into 2010, we should see a similar frenzy toward the new deadline.

Telephone stocks were led by ATT (NYSE:T) as telecommunications giant is said to be undervalued, since the stock is discounted on the basis that the company may loose the iPhone exclusivity later next year.

The market slipped early on Tuesday, after a report from the Commerce Department showed that the U.S. GDP grew at a revised rate of 2.8%, lower than the previous 3.5% pace previously estimated. The market paired losses in the afternoon and ended almost flat as the dollar went from mixed to weak and the Fed’s economic forecast attached to the minutes of the last policy meeting showed an improved outlook.

Financials led the retreat as they fell 0.8% after the FDIC said that the U.S. problem banks jumped to 552 banks at the end of the third quarter and that its fund to protect customers in case of bank failings had slipped to a deficit. The biggest decliner on the Dow was JPMorgan (NYSE:JPM) down 1.85%.

The Dollar turned weaker as the trading day wore off as there were raising concerns that the Fed will tolerate further declines in the greenback by keeping interest rates low, encouraging demand for higher yielding assets.

Mid week, stocks and commodities advanced in a low volume session ahead of the Thanksgiving Holiday. Both the Dow and the S&P 500 reached new 13 month highs as reports on home sales, jobless claims and consumers spurred optimism that the economic recovery is strengthening.

The Encouraging economic reports in the morning were enough for the market to post modest gains.

Raw-materials producers and retailers led gains among 24 groups in the S&P 500. Tiffany (NYSE:TIF) and J. Crew (NYSE:JCG) helped the retail sector as they rallied on better than expected earnings.

Personal spending rose 0.7%, more than expected last month as income increased and consumer sentiment improved slightly in November. Jobless claims fell to 466,000 last week and October new-home sales rose 6.2% to their highest level in over a year.

Gold climbed to a record above $1,190 an ounce on demand for a store of value as the Dollar decreased to a 15 month low against all 16 major currencies, as investor appetite for risk increased.

Crude oil rose as the greenback dropped and a government report showed that U.S. fuel demand gained for a second week. The contract for January delivery rose $1.94 to $77.96 a barrel.

On Friday, stocks joined the global retreat on a thinly traded half session, practically giving up all the gains for the week. Investors were rattled by Dubai’s debt payment moratorium. Commodities tumbled, Treasuries and the Dollar rose, while credit defaults surged.

The Dubai news overshadowed the Black Friday expectations. Stocks started the day under pressure, but as the trading session wore off, losses were tempered.

The retreat was broad based with 97% of S&P 500 companies falling. All 30 Dow components finished lower, with Bank of America (NYSE:BAC) leading the Dow lower as it fell 3.01%.

Dubai shocked global investors late Wednesday by saying it needed at least a six-month deferment on debt owed by Dubai World and Nakheel. Dubai World is the government-owned holding company for Dubai. Nakheel is its real estate arm.

The construction boom in the emirate helped push Dubai as one of the hottest tourist destination and a very strong financial center. However, Dubai did not escape the real estate collapse that has hit the rest of the world, with values plummeting even as pricey projects are under construction.

Early reports suggest that although Black Friday appears to be milder than in recent years, consumers are out in droves to take advantage of discounts. The first shopping day of the critical holiday retail period, is seen as a key barometer of how the next six weeks will play out.

The Dollar rose as Dubai’s attempt to delay debt spurred investors to sell higher-yielding assets and return to the safe haven of the greenback.

Crude oil fell to the lowest level as the Dollar climbed prompting investors to sell commodities. Oil dropped more than $2 a barrel as the greenback jumped, dulling the appeal of raw materials as an alternative investment. The contract for January delivery declined 2.6%, to $75.95 a barrel.

Treasuries rose with 2-year notes advancing and pushing the yield to its lowest level in 11 months, as Dubai’s woes spurred risk aversion. The yield on the benchmark 10 year note fell to 3.20%.

Volatility and gaps at the open are starting to become a common theme. If the market is not able to break resistance in the coming days, the gaps and volatility will only increase.

For next week the S&P 500 level to watch to the upside is 1,112, as it could spark a move towards 1,025 – 1,030. And to the downside everyone we need to watch the 20 day moving average now at 1,085.

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