Market Recap: Financials Lead Big Rally
Lehman, UBS, and Deutsche Bank helped stocks move higher.
The broad-based rally began overseas this morning with investors taking signs that the worst was over in the financial sector. Although UBS (UBS) reported a $12 billion quarterly loss with approximately $19 billion in writedowns, the company announced that it was raising $15 billion in capital to shore up its balance sheet. Even though the new capital raising efforts would be dilutive to existing shareholders, European investors still praised the move by sending the stock higher by as much as 10% in overseas trading.
Elsewhere, Deutsche Bank (DB), Germany's largest bank, announced $4 billion in additional writedowns and stated conditions had become "significantly more challenging."
Minyan Peter noted the problems these banks were facing, "If you don't think that European bank have problems, reread this morning's headlines... Particularly the comments that things aren't getting better. Given that credit is oxygen to the commerce fire, strained European banks is not good news to the European economy, and by interdependence Asian exporters.
Lehman Brothers (LEH) moved higher after it announced yesterday after the bell that it would issue convertible preferred stock to raise capital. The stock would pay a dividend of 7.25% and could be converted to common stock at any time. Although the offering was initially planned for $3 billion, demand for the new securities was very strong so Lehman decided to up the amount to $4 billion.
The combination of these events sent financial stocks surging. Professor Jeff Macke seemed baffled by the logic but still acceptant to the reaction, "If you don't respect the action of the banks today you're trading the market you think should exist, not the one that is. Listen, I thought the Lehman deal was rough and the company spin (In effect: "Dillution and expensive cash; shareholders love this kinda thing!") was terrible. I thought UBS was even worse. Guess What? Those stocks are ripping."
LEH finished +17.8% to $44.34. Merrill Lynch (MER) added +13% to $46.02. Bank of America (BAC) gained +7.6% to $40.81, and Goldman Sachs (GS) added +7% to $176.86. Read Toddo's Random Thoughts: Is This Rally Real?
High beta tech stocks also participated in the rally. Apple (AAPL) finished +4.4% to $149.91. Research In Motion (RIMM) gained +5.8% to $118.61. Google (GOOG) closed +5.5% to $465.00, and its Chinese counterpart Baidu (BIDU) closed +14% to $272.45. Professor Jeffrey Cooper predicted a big upside move in Google in his article this morning Market's Do or Die Set-Up.
Steel stocks also moved higher. AK Steel (AKS) added +6.4% to $57.9 after it said transaction prices for its products would increase approximately 4-6%. The company said the move was due to increased demand as well as the need to recover costs of steel production. Others gainers included Nucor (NUE) +2.3% to $69.32 and Allegheny Tech (ATI) +5.4% to $75.25. Read Professor David C Nelson's Earnings Key To Stemming Bear Market.
Commodities were lower. Crude oil fell -0.78 to 100.80.
Gold stocks tumbled as the price of gold futures dropped. Front-month futures for the yellow metal fell -36.20 to 880.00. Professor Lance Lewis noted that although gold punched through its March low, the XAU, HUI, and GDM held up relatively well.
"These are all positive divergences with gold" said Professor Lewis, "[It] suggests another inflection point is close. When we throw in the continued selloff in fixed income and the rally in equities, it all suggests that the system is beginning to reliquify…. The Fed can inflate to keep the system functioning, but the cost is going to be a dramatically higher inflation rate."
Notable losers include Barrick Gold (ABX) -3.5% to $41.92; GoldCorp (GG) -3.3% to $37.46; and Agnico Eagle Mines (AEM) -4.6% to $64.55. For another perspective, see Professor Cody Tafel's Weak First Quarter Yields Opportunities.
Silver fell -0.540 to 16.770, and copper dropped -3.75 to 382.60.
The dollar index gained +0.753 to 72.552.
For more Buzz insight, check out Minyanville's Buzz Bits.
Below is a recap of some of the idea flow on today's Buzz & Banter (free two week trial). Please note that stocks may appear in both bullish and bearish categories, due to long and short term trades by our many Minyanville professors.
Some bullish trade or investment ideas: FXI, TSS, SPX, MA, V, MT, YHOO, MSFT, COMO, CSR, SCIQ, MRB, CRM, MLNX, VOLT, CTXS, SNDK, MU, AKAM, INFN, EEM, DJIA, gold
Some bearish trade or investment ideas: LEH, DB, UBS, gold, soybeans
Hope you had an awesome day. See you on the hump! Good night Minyans!
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