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US Stocks Remain Lower With Investors Wary Of Hedge Funds |
Date: Friday, February 13, 2009
Author: Market Watch.com
Stocks resumed a deep slide Thursday as investors
shrugged off an uptick in retail sales and lawmakers' progress toward
passing a massive stimulus bill.
The Dow Jones Industrial Average was down about 154 points in recent
trade, falling by 2% to 7785, hurt by declines in 29 of its 30
components. The lone exception was Coca-Cola, which gained 6% after
posting a better than expected 10% rise in fourth-quarter profit.
The market has been volatile this week, highlighted by a 382-point
slide in the Dow on Tuesday. Investors have focused keenly on various
proposals pending in Washington, but worry whether action will come
soon enough, or in the right form.
"Things have become very politicized, and that has investors worried,"
said Michael Farr, president of the portfolio-management firm Farr,
Miller & Washington, based in Washington. "The process has dragged
out already and could yet take awhile longer to resolve."
The S&P 500 was down 1.9%, trading below 820, hurt by declines in
every sector. Financials led the way lower, off 5% as a group. The
Nasdaq Composite Index fell 0.9% to 1516.
Retail sales for January were much better than expected, rising 1%, the
first increase in seven months. While a pleasant surprise amid the
recession, the solid increase seemed to be a correction for plunges
during the holidays rather than the start of a recovery in consumer
spending. Sales in December decreased 3.0%, which was a revision down
from an originally estimated 2.7% decline.
Consumer stocks were weak despite the retail report - the S&P 500's
consumer discretionary sector was off more than 2%. Wal-Mart Stores
dropped 1.4% and Home Depot slid 3.7%.
Market participants are again on guard against another round of forced
selling among hedge funds and other players who need to raise cash.
Such activity drove many of the market's big daily declines late last
year, although traders say it hasn't surfaced so far in 2009, even
during big declines like the one earlier this week.
But with many hedge-fund withdrawal requests due 45 days before the end
of the quarter - which would be Sunday for the quarter ending March 31
- some traders are acting under the assumption this week that funds are
once again increasingly strapped for cash.
The acceleration of price moves and trading volume that regularly
occurred during the last 20 or 30 minutes of daily trading sessions
during the late-2008 swoon hasn't been replicated recently. Last year,
fund managers using algorithmic, or programmed, trading systems would
often jam last-ditch stock sales through late in the session.
Michael McCarty, chief options strategist with Meridian Equity
Partners, said recent options activity has also looked little like it
did late last year, especially in bellwether contracts linked to the
S&P 500.
Nevertheless, the mere perception among some players that others may
land in hot water using such instruments can become a self-fulfilling
prophecy in the market, with traders unloading shares to guard against
a possible downturn later. By deploying that strategy, they then cause
a drop in the market themselves.
"It's a matter of thinking this might be going on rather than the
actual fact that's it's going on that we were victim to," said Mr.
McCarty.
Treasury prices rose Thursday as investors continued to seek out
government debt as a safe-haven despite a massive new supply of bonds
being brought to the market to fund federal rescue efforts. The
two-year note was up 2/32, yielding 0.883%. The 10-year note was up
4/32, yielding 2.782%.
Economists hope that the $789 billion stimulus measure nearing passage
in Congress can help to spur consumer demand, but severe headwinds
remain, as other data Thursday made clear. Initial jobless claims
declined by 8,000 last week to 623,000, but are still near
quarter-century highs. Total claims lasting more than one week hit a
fresh record, inching closer to the five-million mark.
Gold futures, which have been pushing closer to the $1000 an ounce
milestone amid the increased anxiety about the outlook and volatility
in stocks, were up again, near $948. The jump has spurred gains for
gold exchange-traded funds such as SPDR Gold Shares, up 1.1% in recent
trading, and rallied miners like Newmont Mining and Barrick Gold, which
were mixed in recent trade.
Oil futures have meanwhile been moving in the opposite direction amid
demand fears fueled by the global recession. The front-month crude
contract, which suffered heavy losses Wednesday, recently shed another
$1.05 to trade at $34.89 a barrel in New York.
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