Stock Market News for March 16, 2011 - Market News

Optimistic comments from the Federal Reserve on Tuesday helped instill some confidence in the economy and limited the markets from ending at session lows. Benchmarks inched down by a point as Japan’s nuclear crisis started taking its toll, raising concerns of a dip in the global economy. However, experts’ opinion of the Japan crisis being only a short-term drag for the US markets reduced investors’ anxiety to a certain extent. Separately, a state of emergency was declared in Bahrain.

The Dow Jones Industrial Average (DJIA) survived a 300 point plunge shortly after the market opened to end at 11.855.42, dropping 1.2% or 137 points. The Standard & Poor 500 (S&P 500) closed at 1,281.87 recovering from a 2.7% fall after the market opened and finally managed to shed 1.1%. The Nasdaq Composite Index was down 3% shortly after the market opened but closed at 2,667.33, shedding 1.3%. The fear gauge CBOE Volatility Index (VIX) had soared to more than 25% at the start of the session but finally closed at 24.32, a jump of 15%. On the New York Stock Exchange, decliners beat the advancers by a ratio of 4:1. On the NYSE, AMEX and Nasdaq consolidated volumes were at 10.05 billion shares, higher than last year’s daily average of 8.47 billion.

Markets felt the effects of the Japan crisis in the early session, but soon comments from the Federal Reserve restored faith among investors preventing a severe decline. The central bank confirmed it would continue with its $600 billion government bond-buying program and also said interest rates would remain at low rates for a significant period. Additionally, the Fed also gave a rosier outlook of the economic recovery and labor market and said: “The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually”.

The ongoing nuclear crisis has increased investors’ concerns over economic turmoil in Japan, a nation already ravaged by an earthquake and tsunami. The crisis has already affected the technology sector in the US and it is being feared that it will severely impact the global economy. Financial markets in Tokyo were significantly affected and the Nikkei average dropped a significant 10%. Indices in the US were also affected as the benchmarks lost a good deal of points soon after they opened for the session. This comes as no surprise, as Japan accounts for roughly 10% of all US exports. Global equity prices also felt the tremors of the Japanese crisis. Meanwhile, economic minister of Japan, Kaoru Yosano reassured investors saying there was no reason to stop trading. Atsushi Saito, President and CEO of the Tokyo Stock Exchange said: “I believe that the Tokyo Stock Exchange in its role as an important social infrastructure should continue to provide opportunities for stock trading.” He further added: “I would appreciate it if all investors and trading participants would respond in a calm and orderly manner”.

However, in the US, opinion is building that the effects of the crisis will only have a short term negative impact on benchmarks. Japan’s rebuilding activity will provide momentum for the economy in the form of new business opportunities. Some auto part manufacturers stand a chance to benefit from possibilities of Japanese plants shutting down, as Japanese parts may be substituted with parts from US manufacturers. Nonetheless, concerns over disruption of production at US plants owned by Japanese automakers abound.

On the other hand, the crisis in Japan can also help ease global commodity prices, according to Mark Zandi, chief economist at Moody’s Analytics, as the nation is a significant importer of fuel, raw materials and agricultural products. The situation has also helped crude shed 4% to close at $97.18 per barrel. The investors opted out of riskier assets with fears of the crisis intensifying. In addition, the International Energy Agency (IEA) lowered its 2011 outlook for oil demand growth to 1.44 million barrels per day. The IEA further noted that the spare output from OPEC has reached its lowest level in 4 years.

Higher oil prices had taken its cue from unrest in the Middle East. In February, oil output reached an all time high of 89 million barrels a day even as unrest in Libya crippled oil production. The Middle East, which has been in turmoil for over a month now, continued to dampen investor sentiment as a state of emergency was declared in Bahrain. Troops from Saudi Arabia entered Bahrain to subdue the protests as violence continued. Bahrain is the seat of US Navy’s Fifth Fleet and a White House spokesman said: “One thing is clear, there is no military solution to the problems in Bahrain”.

On a sectoral basis, tech stocks took a beating due to concerns over the nuclear crisis and supply issues. A Significant number of tech companies are dependent on Japanese products and components. Shares of Intel Corporation (NASDAQ:INTC), Texas Instruments Inc. (NYSE:TXN), Apple Inc. (NASDAQ:AAPL), National Semiconductor Corporation (NYSE:NSM), Advanced Micro Devices, Inc. (NYSE:AMD), Cisco Systems, Inc. (NYSE:CSCO) and International Business Machines Corp. (NYSE:IBM) shed 3.2%, 1.9%, 2.3%, 3.0%, 1.9%, 2.6% and 1.5%, respectively.

Shares of US utilities and companies dealing with the nuclear sector were also affected. Some of the shares to be hit were Exelon Corp. (NYSE:EXC), Entergy Corporation (NYSE:ETR), Southern Company (NYSE:SO) and uranium producer Cameco Corp. (NYSE:CCJ). Japanese shares traded on the New York Stock Exchange were also affected including Panasonic Corporation (NYSE:PC), Sony Corporation (NYSE:SNE) and Honda Motor Co. Ltd. (NYSE:HMC). However, renewable energy shares such as First Solar, Inc. (NASDAQ:FSLR), SunPower Corporation and Trina Solar Ltd. gained amidst the crisis. General Electric Co. (NYSE:GE) dropped to $19.61 per share at the close given its combined nuclear ventures with Hitachi Ltd. of Japan.

Stock Market News for March 16, 2011 – Market News

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