China’s bank lending warning set off a global sell-off. The S&P 500 was off 2% at one point in the morning, but clawed its way back all day to finish with a 1% loss – bringing us right back to Monday’s open. The sloppy choppy trading has been a trademark of 2010 thus far. Nonetheless, stocks remain 2% higher thru the first 2.5 weeks of the year. The VIX spiked on the day, but finished well off its highs. Breadth was negative at 3:1 and volume was moderate, though higher than it has been on positive days in the last few months.
While today’s action was very negative we see little changing on the economic landscape. The election in MA is not the stock market negative many view it as and the Chinese lending concerns are unlikely to cause an economic downturn in China. China is likely to report 10.5% GDP growth overnight. Thus far, the economy continues to progress nicely under continued stimulus and accommodative Fed actions and the earnings picture continues to warrant positions in risk assets. While we believe hedging strategies are likely to outperform in 2010 we would not be inclined to turn negative based on today’s action. Daily Futures wraps up the action from all markets:
U.S. Economy
The U.S. Census Bureau said that housing starts were at an annual rate of 557,000 units in December, down 4.0% from November’s pace, but up slightly from a year ago. March lumber ended up $1.20 at $255.00.
The U.S. Labor Department said that producer prices were up .2% in December and up 4.4% from a year ago.
Bank of America said that it lost $5.2 billion in the fourth quarter, compared to a $2.4 billion loss a year ago.
Several commodities closed lower with news that China’s government told their large banks to cut back on lending for the remainder of this month.
Grains and Cotton
The combination of a higher dollar and news that China is trying to restrain its economy was hard on grain prices today. March cotton closed down .84 at 70.80.
Livestock
The USDA’s Livestock Outlook said that “heavy snows and cold weather throughout the Plains States have adversely affected the cattle sector.” They also expect the U.S. inventory report on January 29th to show fewer cattle than a year ago. April cattle ended down .05 at 91.12.
The USDA’s Livestock Outlook had some hopeful news for hog producers. They said that recent USDA numbers “imply producer break-even hog prices in the mid-$40 per cwt range, suggesting that most U.S. hog operations could break even in 2010.” April hogs fell .65 to 73.37 after closing at a one-year high yesterday.
Orange juice
The Florida Department of Agriculture said that the extent of damage to Florida’s citrus crop would not be conclusively known for weeks. March orange juice was up 2.45 cents at $1.3580.
Metals
March copper dropped 9.20 cents to $3.355, especially sensitive to the news that China is trying to restrain its economy. April gold fell $27.60 to $1,113.60.
Energies
This week’s U.S. crude oil inventory report will be released tomorrow morning due to Monday’s holiday.
Currencies
The U.K.’s Office for National Statistics said that the unemployment rate in September to November was 7.8%, down from 7.9% a month ago and better than expected. The March British pound closed down .0074 at $1.6281.
Statistics Canada said that manufacturing sales were up .1% in November at C$42.6 billion. Also, consumer prices were up 1.3% in December from a year ago, up from a 1.0% annual gain in November.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.