Wall Street entered the Christmas holiday in subdued mood on Wednesday, posting a modest Santa Claus rally, as investors digested more gloomy data on the economy and, with just four trading days left in 2008, began to take stock of a torrid year.
The crisis that started in the US subprime mortgage market spread this year to become a global economic and financial disaster. Governments around the world were forced to bailout some of the most recognisable names in the financial world as the credit markets seized-up and several high-profile companies including Bear Stearns and Lehman Brothers disappeared into history.
The S&P is down more than 40 per cent so far this year, its worst fall since the Great Depression. Most analysts expect that the more than year-long recession will get worse before it gets better and investors are bracing themselves for more pain in 2009.
Bright spots have been few and far between. Even the consumer staples sector is down by almost a fifth this year.
The financial sector in particular has been decimated with the S&P Financials index down almost 60 per cent so far this year. Citigroup shares have lost 77 per cent, Morgan Stanley 72 per cent and Goldman Sachs 65 per cent over the course of a year that has redefined the fundamentals of the global financial markets.
US automakers also plunged this year after it emerged that General Motors and Chrysler were insufficiently capitalised to make it through the year without government bailout funds. In spite of last week s deal for a $17.4 bridge loan for the two, GM fell 87 per cent year to date. The troubled automaker staged a modest recovery on Wednesday, rising 8.3 per cent to $3.25, but has fallen 27.6 per cent so far this week.
By the close in New York on Wednesday, the S&P 500 index was 0.6 per cent higher at 868.15 while the Nasdaq Composite Index was 0.2 per cent higher at 1,524.90. The Dow Jones Industrial Average was 0.6 per cent higher at 8,468.48. All three remain in negative territory for the week.
Stocks fell amid thin volume in the previous session after a government report showed that the economy contracted 0.5 per cent in the third quarter, in line with expectations and separate reports showing declines in sales of new and existing homes.
Prices for US crude oil futures, which have been in free fall since the dour economic outlook pushed them from their July peak of $147.27, fell another 9.3 per cent to $35.35 in Wednesday trading.
The dollar, which had shown resilience earlier this year, rallying 22.6 per cent from July until its November peak as investors deleveraged, has since fallen almost 8 percent.
And the holiday-shortened session began on Wednesday with investors digesting more disappointing employment data.
New jobless claims last week jumped by 30,000 to 586,000, the highest level since 1982, according to a Labor Department report released on Wednesday.
This strongly suggests another large payroll decline, said Abiel Reinhart, an analyst at JPMorgan Chase.
The latest numbers cap a grim year of job losses: the nonfarm unemployment rate jumped to 6.7 per cent in November, as the economy shed almost 2 million jobs since January.
Wary consumers are clutching tighter to their disposable income, saving 2.8 per cent compared to 2.4 per cent in October and a negative savings rate of 0.1 percent in January, the Commerce Department said on Wednesday.
But in a rare bright note, falling prices, particularly in the energy sector, left consumer spending up 0.6 per cent after adjusting for inflation, the first such increase in six months and disposable income rose by 1 per cent in November.
Declining prices mean that consumers are spending less and buying more, while also increasing savings, John Ryding and Conrad DeQuadros, economists at RDQ Economics, wrote in a research note. This is a win-win situation for the US consumer.
Before adjusting for falling prices, personal spending slipped by 0.6 per cent in November, after dropping a record 1 per cent the month before. Disposable income fell 0.1 per cent before adjusting for inflation.
Meanwhile, new orders placed for durable goods declined by 1 per cent in November defying economists forecasts of a 3 per cent drop, but orders are still on track for their biggest quarterly decline ever after falling 8.4 percent in October, according to economists at RDQ Economics.
With all other evidence pointing to sharp contraction in manufacturing around the world, said Nigel Gault, chief US economist at IHS Global Insight. Companies are probably revising down their capital spending plans as quickly as they are shedding labour.
The Chicago Board Options Exchange s Vix index, known as Wall Street s fear gauge, fell 1.8 per cent to 44.22. The index has shown signs, in recent days, of trending broadly downwards, and is significantly below October s highs which approached 90.
The US stock market will remain closed on Thursday for Christmas. The markets will reopen for a full session on Friday.
The crisis that started in the US subprime mortgage market spread this year to become a global economic and financial disaster. Governments around the world were forced to bailout some of the most recognisable names in the financial world as the credit markets seized-up and several high-profile companies including Bear Stearns and Lehman Brothers disappeared into history.
The S&P is down more than 40 per cent so far this year, its worst fall since the Great Depression. Most analysts expect that the more than year-long recession will get worse before it gets better and investors are bracing themselves for more pain in 2009.
Bright spots have been few and far between. Even the consumer staples sector is down by almost a fifth this year.
The financial sector in particular has been decimated with the S&P Financials index down almost 60 per cent so far this year. Citigroup shares have lost 77 per cent, Morgan Stanley 72 per cent and Goldman Sachs 65 per cent over the course of a year that has redefined the fundamentals of the global financial markets.
US automakers also plunged this year after it emerged that General Motors and Chrysler were insufficiently capitalised to make it through the year without government bailout funds. In spite of last week s deal for a $17.4 bridge loan for the two, GM fell 87 per cent year to date. The troubled automaker staged a modest recovery on Wednesday, rising 8.3 per cent to $3.25, but has fallen 27.6 per cent so far this week.
By the close in New York on Wednesday, the S&P 500 index was 0.6 per cent higher at 868.15 while the Nasdaq Composite Index was 0.2 per cent higher at 1,524.90. The Dow Jones Industrial Average was 0.6 per cent higher at 8,468.48. All three remain in negative territory for the week.
Stocks fell amid thin volume in the previous session after a government report showed that the economy contracted 0.5 per cent in the third quarter, in line with expectations and separate reports showing declines in sales of new and existing homes.
Prices for US crude oil futures, which have been in free fall since the dour economic outlook pushed them from their July peak of $147.27, fell another 9.3 per cent to $35.35 in Wednesday trading.
The dollar, which had shown resilience earlier this year, rallying 22.6 per cent from July until its November peak as investors deleveraged, has since fallen almost 8 percent.
And the holiday-shortened session began on Wednesday with investors digesting more disappointing employment data.
New jobless claims last week jumped by 30,000 to 586,000, the highest level since 1982, according to a Labor Department report released on Wednesday.
This strongly suggests another large payroll decline, said Abiel Reinhart, an analyst at JPMorgan Chase.
The latest numbers cap a grim year of job losses: the nonfarm unemployment rate jumped to 6.7 per cent in November, as the economy shed almost 2 million jobs since January.
Wary consumers are clutching tighter to their disposable income, saving 2.8 per cent compared to 2.4 per cent in October and a negative savings rate of 0.1 percent in January, the Commerce Department said on Wednesday.
But in a rare bright note, falling prices, particularly in the energy sector, left consumer spending up 0.6 per cent after adjusting for inflation, the first such increase in six months and disposable income rose by 1 per cent in November.
Declining prices mean that consumers are spending less and buying more, while also increasing savings, John Ryding and Conrad DeQuadros, economists at RDQ Economics, wrote in a research note. This is a win-win situation for the US consumer.
Before adjusting for falling prices, personal spending slipped by 0.6 per cent in November, after dropping a record 1 per cent the month before. Disposable income fell 0.1 per cent before adjusting for inflation.
Meanwhile, new orders placed for durable goods declined by 1 per cent in November defying economists forecasts of a 3 per cent drop, but orders are still on track for their biggest quarterly decline ever after falling 8.4 percent in October, according to economists at RDQ Economics.
With all other evidence pointing to sharp contraction in manufacturing around the world, said Nigel Gault, chief US economist at IHS Global Insight. Companies are probably revising down their capital spending plans as quickly as they are shedding labour.
The Chicago Board Options Exchange s Vix index, known as Wall Street s fear gauge, fell 1.8 per cent to 44.22. The index has shown signs, in recent days, of trending broadly downwards, and is significantly below October s highs which approached 90.
The US stock market will remain closed on Thursday for Christmas. The markets will reopen for a full session on Friday.
