Several factors conspired to push the DJIA down 245 points today. First came news that Indian outsourcing giant Satyam was cooking the books (via WSJ):
The chairman of one of India’s largest information technology companies admitted he concocted key financial results including a fictitious cash balance of more than $1 billion, a revelation that sent shock waves across corporate India and is likely to prompt investors to question the validity of corporate results as the once-hot economy slows.
Ironically, Satyam means truth in Sanskrit. I’m not sure what the word for Enron is in Sanskrit, but it would seem appropriate here. Satyam stock was down almost 80% in Indian trading and the Indian market was down almost 8% as a whole. While this doesn’t directly impact the US market, it does affect the psychology of an already distrustful market.
Intel announced this morning that its sales would be down more in the 4th quarter:
Intel Corp. issued a second warning about business conditions in the fourth quarter, a sign that computer demand is sinking so fast that accurate forecasting is difficult.
The big chip maker said it now expects to report $8.2 billion in revenue for the quarter — a 20% drop from the third period, after issuing a forecast Nov. 12 that pointed to a decline of about 12%. Fourth-quarter results are traditionally the strongest for the semiconductor industry, and Intel had projected in mid-October that sales would rise 3% from the third period.
While this was somewhat of a surprise, I don’t think anyone is expecting good news about the 4th quarter. The stock closed down 6%.
Also this morning, ADPs payroll report was just downright grim:
US employment in the private sector fell by 693,000 in December, according to the ADP employment report released Wednesday. This follows a downwardly-revised November in which payrolls were lower by 476,000, not the initially reported 250,000. For December, the number was below estimations, as economists were looking for job losses in the range of 500,000.
All of this combined to make for a very difficult day in the stock market. However, for now the S&P 500 uptrend since late November remains intact:
Recovery will not be a straightline affair and investors shouldn’t get in a hurry about getting in this market. None of this news today was all that surprsing but it provided a good excuse for traders to take some badly needed, short term profits.
It should also be noted that employment is a lagging indicator and will not rise until well after the official end of the recession.
The other major factor in the market today was the selloff in the oil market. Crude was down almost $6/barrel and that hit the energy stocks which have been leading the rally in recent days. Other resource stocks joined in as gold stocks were hit particularly hard:
The Goldman Sachs Commodity Index, which I highlighted yesterday as a potential buy, was also down on the day:
I still think the index has seen its bottom and the action today does not change my mind about the potential buy. On the other hand, I’m glad I haven’t started buying yet. Depending on action over the next few days, I will still likely be adding to our core position in GSG.
Today wasn’t pretty but the market action didn’t really change anything. The sentiment and the market had just gotten a little ahead of the news and a pullback is not surprising.
Disclosure: Alhambra Investment Management and its clients may have positions in securities mentioned.