Markets May Continue to Be Volatile In Face of More Negativity - RTTNews Daily Market Analysis

(RTTNews) - The major U.S. index futures are pointing to a lower opening on Tuesday. Earnings season has started on a damp note, with Alcoa (AA | Quote | Chart | News | PowerRating) reporting disappointing earnings. The prices of commodities are continuing to weaken amid additional confirmation of the all-pervading weakness. Although Federal Reserve Chairman Ben Bernanke's encouraging pledge of support should help alleviate some concerns, the underlying weakness and uncertainty over the timeframe for a recovery are unlikely to allow a meaningful move to the upside.

U.S. stocks opened Monday's session lower and declined steadily over the course of trading to close firmly in negative territory. Continuing anxieties over earnings and the economy led to another round of sell-off, taking the steam out of the fledgling recovery seen in the last few days of 2008 and the first few days of 2009. A steep drop in commodities prices contributed to significant weakness among resource stocks, which helped to lead the way lower.

The Dow Industrials ended down 125.21 points or 1.46% at 8,474 and the S&P 500 Index receded 20.09 points or 2.26% to 870, while the Nasdaq Composite Index fell 32.80 points or 2.09% to 1,539.

Twenty-five of the Dow components ended the session lower, with financial stocks Citigroup (C) (down 17.04%), Bank of America (BAC | Quote | Chart | News | PowerRating) (down 12.01%) and JP Morgan (JPM | Quote | Chart | News | PowerRating) (down 4.08%) and Alcoa (AA | Quote | Chart | News | PowerRating) (down 6.94%) leading the slide. On the other hand, Home Depot (HD | Quote | Chart | News | PowerRating), IBM (IBM | Quote | Chart | News | PowerRating) and Kraft Foods (KFT | Quote | Chart | News | PowerRating) found some buying interest.

Among the sector indexes, the Amex Securities Broker/Dealer Index slipped 4.72% and the KBW Bank Index slumped 6.10%. The Dow Jones Transportation Average lost 4.10% compared to the 2.69% slippage by the Amex Airline Index. The Philadelphia Housing Sector Index and the S&P Retail Index ended down 5.49% and 2.82%, respectively.

In the commodity space, the Amex Oil Index fell 3.17% and the Philadelphia Oil Service Index declined 4.95%, while the Amex Gold Bugs Index receded 6.73%. Among technology indexes, the Philadelphia Semiconductor Index moved down 2.88% compared to over 4% drops by the Amex Disk Drive Index and the Amex Internet Index.

The Dow Industrials, which has formed an uptrending channel since late November, is now facing the risk of violating the trend following the retreat witnessed since the middle of last week. Pre-announcements and the prospect of seeing very weak earnings have kept sentiment subdued despite investor optimism of macro economic conditions taking a turn for the better in the New Year. Weak results from Dow component Alcoa and sagging commodity prices are likely to weigh on the market and in the eventuality of a further retreat, the Dow is likely to find support around 8,348, 8,115 and the November lows of 7,436.

Currency, Commodity Markets

Crude oil futures are trading down $0.01 to $37.58 a barrel after receding $3.24 to $37.59 a barrel on Monday. Gold futures, which fell $34 to $821 an ounce in yesterday's session, are currently rising $1.10 to $822.10 an ounce.

On the currency front, the U.S. dollar is trading at 89.548 yen after it weakened to 89.214 yen at the close of New York trading on Monday. Against the euro, the dollar is trading at $1.3227.

Asia

Stock markets in the Asia-Pacific region closed mostly lower on Tuesday as concerns over weak corporate earnings and falling commodity prices weighed on investor sentiment. Crude oil slipped to below $37 per barrel in late Asian trading.

The Japanese stock market closed sharply lower following overnight losses on Wall Street. Concerns over the earnings outlook of major Japanese companies like Sony and Toshiba due to a stronger yen relative to the U.S. dollar also weighed on investor sentiment. The benchmark Nikkei 225 Index lost 422.89 points, or 4.79%, to 8,414. The Japanese market was closed on Monday for a holiday. Tuesday's losses marked the Japanese market's third straight session of losses.

On the economic front, Japan's Ministry of Finance said the country's unadjusted current account surplus for November was 581.2 billion yen, down 65.9% year-over-year. The surplus was 960.5 billion yen in October and 1.7058 trillion yen in November 2007. The unadjusted trade balance showed a deficit of 93.4 billion yen following a 145.8 billion yen surplus a month earlier and a 907.6 billion yen surplus a year earlier. Exports were down 26.5% year-over-year, marking the largest decline on record, the Ministry said. Imports fell 13.7%.

Meanwhile, the Bank of Japan said that Japanese bank lending to banks excluding trusts was up 4.1% year-over-year, a faster rate than the 3.6% annual gain in November.

Tech stocks closed sharply lower. Advantest slumped 7.52%, Kyocera shed 5.19% and Tokyo Electron slid 7.21%. Tokyo Electron said that orders for its tools to make semiconductors, flat panel displays and solar panels dropped about 65% in the October-December period from the preceding quarter.

Among export-oriented stocks, Sony shed 8.88%. The Nikkei business daily reported that Sony is expected to report its first full-year operating loss in 14 years, of about 100 billion yen. In October, Sony had forecast an operating profit for the year.

Meanwhile, Canon dropped 7.19% after the company's chairman said that year-end holiday sales were disappointing. Komatsu fell 8.64% and Sharp declined 9.19%. Toshiba fell 8.55% after national broadcaster NHK reported that company was set to post its first operating loss in seven years.

Electronics maker Panasonic said it will cut its investment in two new flat-screen TV plants by about $1.5 billion and exit unprofitable businesses amid the global economic slump. The company's stock fell 7.81%. Oil and financial stocks also declined sharply

The South Korean stock market pared early losses and closed higher for the first time in four sessions on bargain hunting. Banking and tech stocks closed higher. The benchmark Korea Composite Stock Price Index, or KOSPI, advanced 10.96 points, or 0.95%, to close at 1,168.

Tech stocks closed higher. Market heavyweight Samsung Electronics added 0.41% Hynix Semiconductor rose 2.17% on news that its creditors have agreed to complete the company's sale by September this year. LG Electronics improved 0.13%. The company said it intends to launch a notebook in the U.S. market for the first time within the first half of 2009. LG Display LCD climbed 3.18%.

The Australian stock market closed lower for the second straight session following the second straight triple-digit loss on Wall Street overnight and as commodities price drops hinted at further weakness in the economy. Resource stocks fell on demand worries. The All Ordinaries index lost 30.10 points, or 0.83% to settle at 3,594. Miners and energy declined sharply, while banking stocks closed mixed. Europe

Lower commodity prices are weighing on the European markets, with the French CAC 40 Index and the German DAX Index receding 2.02% and 1.42%, respectively, while the U.K.'s FTSE 100 Index is down 1.45%.

On the economic front, the German Statistical Office released a report on wholesale selling prices for December, showing a 3% decline from the previous month. Annually, the index of selling prices in wholesale trade fell 3.3%. The U.K. Office of National Statistics said the U.K.'s trade deficit widened to 4.5 billion pounds in November from a deficit of 3.9 billion pounds in October.

U.S. Economic Reports In November, the U.S. trade deficit narrowed substantially to $40.4 billion from a downwardly revised deficit of $56.7 million in October, according to a report released by the Commerce Department. October's trade deficit was originally reported at $57.2 billion. Economists had been expecting the trade deficit to narrow to $51 billion.

The narrower deficit reflects a decline in exports, which in turn is seen as a corollary of slowing global growth, and a notable decline in imports. October exports were down $8.7 billion to $142.8 billion, while imports fell $25 billion to $183.2 billion. The goods deficit fell $16.6 billion to $52.4 billion compared to a $0.4 billion drop in the services surplus to $12 billion.

The Treasury Budget, a monthly account of the surplus or deficit of the federal government is scheduled to be released at 2 PM ET on Tuesday. Economists expect the budget for December to show a deficit of $33 billion.

Stocks in Focus

Alcoa (AA | Quote | Chart | News | PowerRating) could be in focus after it reported a loss of $1.49 per share for its fourth quarter compared to a profit of 75 cents per share for the year-ago period, which benefited from restructuring and tax gains. The recent quarter included charges of $1.15 per share. Revenues declined to $5.7 billion from $7 billion last year, but exceeded the average analysts' estimate of $5.06 billion. The company attributed the weak performance to a 35% decline in aluminum price and a drop in demand.

Bristol-Myers (BMY | Quote | Chart | News | PowerRating) and ZymoGenetics (ZGEN | Quote | Chart | News | PowerRating) could react to their announcement that they have forged a global collaboration for PEG-Interferon lambda a novel type 3 interferon for the treatment of Hepatitis C, which is currently in Phase Ib development. The agreement calls for Bristol-Myer to pay an upfront cash payment of $85 million for the development and commercialization rights for the compound and an additional license fee of $20 million in 2009. Zymogenetics also stands to get additional 1 billion in milestone payments.

CSX Corp. (CSX | Quote | Chart | News | PowerRating) may see weakness after it said it expects adjusted earnings of 90 cents per share for its fourth quarter, below the consensus estimate of 98 cents per share. The company said it would record a charge of 27 cents per share towards write downs related to Greenbrier, its luxury resort. The company also announced sales of $2.7 billion, lower than the consensus estimate of $2.77 billion.

JP Morgan Chase (JPM | Quote | Chart | News | PowerRating) could also be in focus after it said it has pushed ahead the schedule for its earnings release to January 15th, 2009 from January 21st, 2009. Elan (ELN | Quote | Chart | News | PowerRating) may see some buying interest after it reported that its board has appointed Global Markets to review strategic options, including minority investment or strategic alliance, a merger or sale.

Infosys (INFY | Quote | Chart | News | PowerRating) is likely to see buying interest after it reported third quarter revenue growth of 8% to $1.17 billion. The company's earnings per share rose 5.5% to 58 cents per share. The consensus estimates had called for earnings of 55 cents per share on revenues of $1.18 billion. For the fourth quarter, the company expects revenues in the range of $1.13-$1.17 billion and earnings per share of 55 cents per share. The company slightly reduced its dollar guidance for fiscal year 2009.

Health Management Associates (HMA | Quote | Chart | News | PowerRating) is likely to see some weakness after it said it expects fourth quarter adjusted earnings from continuing operations of 6 cents per share, below the consensus estimate of 9 cents per share. The company expects fourth quarter net revenues from continuing operations of $1.1 billion compared to the $1.11 billion consensus estimate. The company expects fiscal year 2008 adjusted earnings from continuing operations of 38 cents per share and net revenues from continuing operations of $4.5 billion. Analysts, on average, estimate earnings of 41 cents per share on revenues of $4.45 billion. Additionally, the company said it expects 2009 revenues in the range of $4.55 billion to $4.65 billion.

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