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Market Recap: Stocks Fall, Oil Veils Credit Concerns


Markets gave up early gains. High oil prices masked more credit problems.

Traders dumped their stocks late in today's session. The Dow Industrials fell -11 points, or -0.09% to 12,337, the S&P 500 fell -1.2 points, or -0.09% to 1,348, and the Nasdaq Composite lost -15 points, or -0.67% to 2,306.

Stocks were strong for much of the trading day with the Dow being up as high as in the triple digits. Yet the markets took a turn for the worse late in the session with many traders citing surging oil prices as a cause for bearishness. But Professor Kevin Depew wasn't convinced. "If crude is the reason, then how do we explain [the divergence between crude oil futures and the S&P]?" Professor Depew asked on the Buzz. "Is it that crude wasn't the reason until it hit $85? And then $100?... As Toddo noted… the real danger for stocks is crude oil at $50/bbl, and what that implies about demand, not at $150/bbl."

Other professors at Minyanville were quick to point out deteriorating credit conditions in the financial markets as the more likely catalyst. "I just received today's results of Auction Rate Securities," said Professor Bennet Sedacca, "It's interesting how the market is already becoming bifurcated. Every single retail deal failed. The reason is that the maximum rate on most of these deals that back closed end funds caps out in the 4.5-5.5% market… This problem is bigger than one might think… I continue to think this problem won't go away anytime soon and that is far more dangerous to the economy than many think."

Toddo had noted the warnings signs earlier in the financial stocks. "Bear Stearns (BSC)… Lehman (LEH), Blackstone (BX), Goldman (GS) and the homies are pretty in pink. I still don't like the way the financials trade, particularly in the face of the jiggy green opening." Those stocks ended lower. BSC declined -3.3% to $80.02. LEH fell -2.2% to $53.57. BX lost -2.66% to $16.13, and GS fell -2.5% to $173.80. For more, read Toddo's Random Thoughts.

Retail stocks largely suffered as a result of Wal-Mart's (WMT) earnings. The company reported fourth quarter profits of $1.04 EPS vs. $1.02 cons but guidance was on the lower end of the range of analyst estimates and forecasts for FY09 were actually lower. Ironically WMT settled +0.44% to $49.66 but most stocks in the sector fell. Leaders to the downside included Costco (COST) -2.96% to $62.01, Target (TGT) -1.60% to $52.22, and Sears (SHLD) -2.28% to $96.50. The broader retail ETF (RTH) fell -1.23% to $90.37. Read Professor du Plessis' article Retail Sales Weigh Heavily.

Coal stocks recovered after Friday's sell-off. Notable gainers included Arch Coal (ACI) +6.9% to $52.82, Peabody Energy (BTU) +6% to $58.97, and Alpha Natural Resource (ANR) +7.4% to $3752. Professor Lewis noted the sentiment was all part of commodities as a whole, which surged on news of China's inflation data.

"The slide in the dollar and the rally in the commodities are related to China's inflation rate accelerating (China's January CPI hit an 11 year high). China will be forced to allow the yuan to appreciate much faster because that is the only way it can combat the inflation problem. Simply raising rates in China won't accomplish anything except put more upward pressure on the yuan / dollar, especially with the U.S. Fed lowering rates. ...the result will be higher inflation in the U.S. higher commodity prices due to China's increase in purchasing power, and higher U.S. bond yields…"

Crude oil touched the $100 mark before settling slightly lower +4.05 to 99.55. Gold added +23.40 to 926.20, silver gained +0.382 to 17.50, and copper gained +20.40 to 372.50.

The dollar index fell -0.228 to 76.028.

For more summaries, click on Minyanville's Buzz Bits.

Below is a recap of some of the idea flow on today's Buzz & Banter. 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: SPX, ADS, AKAM, CTXS, FFIV, INFN, JAVA, MLNX, QLGC, TXN, LUV, VRSN, AAPL, LNN

Some bearish trade or investment ideas: ARS (Auction rate securities), WB, DRYS, LVS, SDS, WFMI

Tomorrow's already the hump! Have a great night!

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No positions in stocks mentioned.

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