The U.S. markets teeter on the edge of the cliff as investors react to a wave of bad news on Friday. The U.S. GDP numbers came in worse than expected and the S&P 500 sank to new multi-year lows before staggering back to almost breakeven on the day. A lot of folks are watching whether or not the S&P 500 index will close the month of February under the November 2008 closing low of 752. If the S&P 500 does close under this level it will be a big negative for technical traders. Currently the S&P 500 is poised to close with a 9.3% loss for the month of February.
Many of the market pundits and talking heads on T.V. were surprised to see the market show so much relative strength. There were several potential market-moving headlines today and they were all bad. The GDP number was bad. The news about the government upping its stake in Citigroup is bad. News that General Electric (GE) was cutting is dividend is bad. Yet the Dow Industrials, the NASDAQ and the S&P 500 have rebounded back from their lows and have made it into positive territory. Is this just short covering ahead of the weekend?
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Jones Industrials:
Economists were expecting the final figures for the fourth quarter of 2008 GDP to come in at a negative 5.4%. Down from previous estimates of -3.8%. The real drop was -6.2% and the worst decline since 1982. Most of the internals behind the GDP number today are suggesting that we are in the worst recession since World War II. Current estimates for the first quarter of 2009 is for the GDP to fall another 4.8%, which would be a new multi-decade record. U.S. GDP hasn't fallen more than 4% for two quarters in a row since 1947. As one economist put it, "there is no evidence that the pace of decline is slowing."
The U.S. government announced its third attempt at trying to save Citigroup from collapsing under its own weight today. The U.S. Treasury said it will convert $25 billion of its $45 billion in preferred shares into common stock and raise its ownership stake to 36%. This is ridiculous! The government owned $45 billion in preferred and Citigroup's market cap was about $11 billion. If they convert $25 billion into common stock they should own about 69% of the company not 36%. Someone correct me if I did that math wrong. If they had converted all $45 billion it would have been worth about 80% of the newly diluted common equity shares. As part of the deal Citigroup will cancel its one-cent dividend and replace a few board members. Shares of Citigroup (C) were down 37% to $1.54.
General Electric (GE) made headlines today with an announcement the company would slash its quarterly cash dividend. Due to the stock's massive sell-off over the last several months GE's 31-cent quarterly dividend was producing a 13.6% annual yield. Speculation that GE would have to cut its dividend had been rampant for weeks. Today's GDP numbers made a nice backdrop for the company's decision to reduce their dividend to just ten cents($0.10) a quarter.
Citigroup looks like it's about to join a growing club of stocks that are trading at less than $1.00 a share. The New York Stock Exchange has rules about stocks trading that low but given the current environment the NYSE has announced it will temporarily suspend its requirements. Normally when a stock's share price trades at less than $1 for 30 consecutive days the stock is delisted from the NYSE and typically ends up in the Pink Sheets. The NYSE also relaxed its standards on its minimum market cap from $25 million down to $15 million. The rule suspension will last until June 30th but it's possible they could choose to extend it. I mean what are rules for except to be broken. I know you're wondering and the answer is 56. That's how many stocks on the NYSE are currently trading under $1.00. Here's the link if you'd like to read the NYSE's release:
a href="http://www.nyse.com/press/1235647172819.html" target="new">http://www.nyse.com/press/1235647172819.html
I am a little surprised that gold isn't showing more strength today. The GLD gold ETF did spike higher this morning when stocks gapped open lower but as stocks rebound they have continued to sell gold. Meanwhile both the U.S. dollar and crude oil are trading higher today. The dollar is paring its gains and oil has bounced back from its morning losses. The USO oil ETF is set to mark its sixth gain out of the last seven trading days.