Getting Uglier by the Minute

by Michael Panzner, Financial Armageddon. March 5, 2009

This morning, the Commerce Department reported that U.S. factory orders for January fell 1.9%, which was better than forecast. A cause for celebration? Not really. On a year-on-year basis, the 19.2% decline was only three-tenths of a percentage point less than December’s record low. As the accompanying chart suggests, it’s probably going to take much better news than that before there is any real hope of a near-term turnaround.

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As of today’s close, the S&P 500 index is 9.3% below its 2008 closing low of 752.44, recorded on November 20th. However, if you break the market down by sector, you notice some interesting disparities. Two groups -- information technology and telecom services -- have actually held above their worst levels of last year and have handily outperformed the broader market. Four others -- consumer discretion, materials, health care and energy -- have also outpaced the S&P 500, though they did manage to hit new lows this week. The remaining groups -- consumer staples, utilities, industrials, and financials -- have not only slipped beneath last November’s lows, but have also underperformed the benchmark index since then.

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On Monday, the Commerce Department announced that the nation’s personal savings rate as a percentage of disposable income reached 5%, its highest level in 14 years. That is consistent with news reports indicating that worried Americans are reining in spending and doing what they’ve been avoiding for years -- saving for a rainy day. But will the trend continue? Well, based on the following chart, I reckon that no small number of technical analysts would probably say “yes.”

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Finally, the value of the S&P 500 index has been cut in half over the past twelve months. Of course, many of its constituent members, especially financial stocks, have fallen by more, including General Electric and Bank of America, once among the biggest stocks in the index but now down 80% and 90%, respectively, from their year-earlier levels. In fact, they and others like them comprise an expanding group of former double-digit heavyweights that have been transformed into single-digit midgets. If this carries on, we might have to start referring to the popular benchmark as the S&P 500 Penny Stock Index.

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Stocks ended the day sharply lower, hurt by continued weakness in financials after Moody’s said it may downgrade the credit rating of JPMorgan (-14%) and a sell-off in energy shares on slumping crude oil futures (-3.9%).

At the close, the Dow Jones Industrial Average shed 281.40, or 4.1%, to 6,594.44. The S&P 500 Index fell 30.32, or 4.3%%, to 682.55. The Nasdaq Composite Index slid 54.15, or 4%, to 1,299.59.

April gold futures rallied $26.70, or 2.9%, to $933.40, while the U.S. Dollar index added 0.6%. Ten-year Treasury bond yields plunged 16 basis points to 2.81% following a 0.5% rate cut by the Bank of England and the U.K. central bank’s aggressive plan to monetize public and private debt.

Michael Panzner

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