Stocks face a test after JPMorgan's big trading loss
Facebook is supposed to go public. Heads are seen rolling at JPMorgan. Earnings are due from Wal-Mart, Target, Home Depot, Ross Stores and Deere. Continued fears about Europe will test markets. Yahoo starts another CEO search.
Updated: 3:00 a. m. Monday
There were two big risks for stocks in the past week: Walt Disney's (DIS) performance and whether Europe would drive investors crazy.
Disney came through for investors and ended the week up 5.7%, tops among the 30 Dow stocks. Europe did drive people pretty crazy, as no one was sure if Greece could form a government and whether Spain would be able to save its banks.
And then JPMorgan Chase (JPM) shocked investors worldwide with the disclosure that a hedging plan to protect the bank from problems in credit markets ended up being the problem itself. It may generate a $2 billion loss. JPMorgan shares fell $3.78 to $36.96 on Friday, its biggest one-day percentage loss since August. The loss is expected to start house-cleaning, starting Monday.
The week ahead, meanwhile, offers a host of earnings, including Wal-Mart Stores (WMT), Home Depot (HD) and Target (TGT). There are big economic reports such as retail sales and housing starts plus release of minutes from the Federal Reserve's April 24-25 meeting. But the market will be watching Europe and JPMorgan most closely. Futures trading Sunday suggests stocks will open modestly lower on Monday,
JPMorgan CEO Jamie Dimon is expected to accept the resignation of Ina Drew, the company's chief investment officer, as a result of the huge trading loss. Drew, 55, had been one of the most powerful women on Wall Street. Other departures are expected, Reuters said Sunday.
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Last year, Drew earned roughly $14 million, making her JPMorgan's fourth-highest-paid officer.
Two of Drew's subordinates who were involved with the trades, Achilles Macris and Javier Martin-Artajo, are expected to be asked to leave, Reuters said. In addition, trader Bruno Michel Iksil, known as the "London Whale" for big positions he took in credit markets, is expected to be ousted, The Wall Street Journal said Sunday.
Drew had reportedly offered to resign after the bank discovered that its portfolio of derivatives tied to bonds was rapidly losing money and had grown too big to be quickly unwind, according to one of the sources. But the resignation was not immediately accepted because of her past performance at the bank.
The problem with JPMorgan Chase is that it was widely believed to be a fortress bank, able to make lots of money and manage through the tough times. The trading loss has shattered that perception, and Steven Gandel of Fortune says a closer look at its financial position reveals a lot more risk that has been believed.
At the same time, Yahoo (YHOO) shares will see more volatility. The company accepted the resignation of CEO Scott Thompson on Sunday after dissident shareholder Dan Loeb found that Thompson's résumé was inaccurate. Four members of Yahoo's board also left. Thompson resigned in part because he was recently diagnosed with thyroid cancer, The Wall Street Journal reported.
Market falls for a 2nd week in a row and is struggling in May
The JPMorgan loss was a big reason that stocks ended down for a second week in a row. The Dow Jones industrials ($INDU) fell 1.7%. The Standard & Poor's 500 Index ($INX) dropped 1.2%, with the Nasdaq Composite Index ($COMPX) down 0.8%.
May is shaping up as the worst month for stocks since September. The Dow is off 3.1%, with the S&P 500 down 3.6% and the Nasdaq off 4.4%. The market also fell in May 2011 and May 2010.
For the year, the Dow is up 4.9%, with the S&P 500 up 7.6% and the Nasdaq up 12.6%.
Get ready: All Facebook, all the time
Facebook will get lots of television coverage because of the likelihood it will be the largest Internet IPO. The offering, designed to raise $10.6 billion for Facebook and selling shareholders, is supposed to price after Thursday's close in a range of $28 to $35 a share. That would imply a market value of as much as $96 billion for the stock. Shares would start trading on Friday under the ticker FB.
It's not quite clear how the offering is doing. For one thing, the company's S-1 prospectus has not been declared effective -- the Securities and Exchange Commission's jargon for legally OK. If it isn't declared effective, you can't sell the stock.
Reuters has reported the offering is oversubscribed. Bloomberg has said institutional investors are worried about the possibility Facebook's growth is slowing. Plus, traffic from its mobile site is growing much faster than the traditional computer site. But there's little ad revenue coming in from mobile.
More questions ahead for JPMorgan Chase
Meanwhile, the questions will grow around JPMorgan Chase.
What many people don't know is if what CEO Jamie Dimon described on Thursday really is all there is to the problem. And it revives the great worry that pervaded the worst of the financial crisis: Does the big boss really know all there is to know? Does anybody?
Banks are supposed to take risks. That is the point of business from a shareholder's perspective. With prudent risk comes profit. But big global banks are so complex that things can easily go wrong. Even Dimon conceded that point on Thursday.
Europe's problems are still with us
Europe is a different problem. Greece is admittedly a dodgy country to have in the European Union. Data Greece used to qualify for membership turned out to have been shaky at best. So, by all rights, Greece should get kicked out of the eurozone. Its economy is disintegrating, with calls for more austerity likely to make things worse.
The problem in forming a government after the May 6 elections is that no one wants the austerity -- except the European Union.
Spain has a different problem. Its public finances are falling apart because the country went on a real-estate binge. (Sound familiar?) The government had to take control of its fourth-largest bank in the past week, and there are worries about the rest of the banks.
So, there will be the usual back-and-forth. One day, investors feel great about Europe. The next day, they don't.
The earnings reports: Groupon, Home Depot, Wal-Mart, Target
Every quarter's earnings season finishes basically with Wal-Mart, which reports before Thursday's open.
It's been a decent string of earnings but not spectacular. Some 66% of S&P 500 companies that have reported results so far have beaten Wall Street estimates. That's better than the long-term average of 62% but lower than the average of the past four quarters of 68%.
The best quarter was the third quarter of 2009 when 79% of companies beat estimates, according to Thomson Reuters.
Here are the week's key reports.
Monday: Deal site Groupon (GRPN), whose IPO has been problematic. There have been management and accounting problems. The shares closed at $26 on their first day of trading. They're now at $9.90.
Tuesday: Dick's Sporting Goods (DKS), Home Depot, Saks (SKS) and J.C. Penney (JCP). Home Depot will help flesh out the picture of the housing market. J.C. Penney has to prove its turnaround plan is working.
Wednesday: Abercrombie & Fitch (ANF), Deere (DE), Staples (SPLS) and Target. Deere's results in the last year or so have disappointed. The stock has struggled. Target has lately won Wall Street fans. Shares are up 9.4%.
Thursday: Wal-Mart, Ross Stores (ROST), Dollar Tree (DLTR) and Safesforce.com (CRM). Wal-Mart's image has been tarnished since The New York Times alleged bribery was a big factor in its rapid growth in Mexico. Salesforce.com shares have come off their highs in April, suggesting its rapid growth may be at risk.
Friday: Ann (ANN), the former Ann Taylor, and Foot Locker (FL).
|Markets for the week|
|5/11/2012||5/4/2012||% chg.||YTD chg.|
|U.S. Dollar Index||80.40||79.59||1.03%||-0.15%|
The economy: The Fed minutes, CPI, housing starts, retail sales
The Fed minutes may get the most scrutiny to gauge the intensity of the Fed's willingness to pump more money into the banking system to give some juice to the economy.
Investors believe the Fed will pump money in before thinking. That's not a given.
Half the members of the central bank's Federal Open Market Committee are more worried about inflation. Chairman Ben Bernanke had conceded there must be a real crisis for the central bank to act.
This week did not come remotely close to qualifying.
Here's the rest of the week:
Consumer Price Index for April, due Tuesday. Look for a small decline because of falling gasoline prices.
Retail sales for April, due Tuesday. Wall Street pays a lot of attention to this report. Watch the sales growth excluding autos. It's likely to show some shrinkage after the warm winter weather helped business.
Housing starts and building permits, due Wednesday. Starts should grow because of strong permit growth in March. Permits may decline.
Industrial production and capacity utilization, due Wednesday. Both should rise modestly.
Empire State manufacturing survey for May and Philadelphia Federal Reserve Bank manufacturing surveyfor May, due Tuesday and Thursday, respectively. These may frustrate by declining as rapid growth early in the year tails off.
Initial jobless claims, due Thursday. Look for claims of between 370,000 and 380,000 in the latest weekly report. That's a sign of modest but steady job growth.
Index of leading economic indicators for April, due Thursday. Nomura Securities sees the index increasing by 0.1% in April following a rise of 0.3% in March. A contributing factor: expansion of the manufacturing workweek.
Screw continuing to flounder and struggle so that TBTF's can flourish, and their CEO's can live the high life!!!
Throw them a public stoning party then toss the slugs in jail where the inmates can host a ceremonial pouring of the salt.
Same old story, unregulated bank continues to gamble its money on half assed schemes that it would not allow its customers to gamble on. The bank got greedy and stupid and lost a fantastic amount of money. What ever happened with the old theme that the business is supposed to look out for its stockholders?
The banks will continue to do the greedy things until someone watches them closely and stops them when they get too risky and greedy. Only two billion dollars, like that is chump change, seems to me a bit blasé.
We almost went into a Depression when the banks played with the customers money and the tax payers had to bail them out. The banks either play fair and smart or they must be regulated. Pretty galling that all the crooked bankers got to keep their big paychecks and commissions while the customers got the finger.
Consider this excerpt from an article I read this weekend. What say you?
With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.
Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives.
One of the best purchases Wall Street made was congress and as a silent partner owner of the Fed they call the shots. To big to fail, not when your CEO reigns on the Federal Reserve Board. Talk about your Fox in the chicken house.
Of course they say no regulation and of course they have the clout to make sure there is no regulation. Banks should not be managing their own risk, since it is our money regulators should be managing their risk for them by making sure they can't get involved in risky credit swaps, dangerous complicated derivatives in the hedge funds and buying on the margin.
RS & BS...
A better question would be who will support the democrats? With everyone collecting, and no one contributing to society, they will all be poor and starving. Socialism always makes everyone poor. Just look at the so called great 'Socialist' countries today... The left always trots out the Norway, and Finland, and other Euopean nations, but they fail to mention the standard of living is almost half of the USA. They are far poorer than the average American, and have a higher percentage of poor.
Free Market Capitalism is still the best path to Prosperity, no matter what the Democrats keep telling you... Unless you are willing to work for someone else's benefit. If you are please let me know, I'd like you to work and let me share in your pay check...
It''s true that the all out greed of the derivative market contributed to take out the market in 2008. Goldman Sachs was even caught actively betting against it investors by buying credit default swaps. Win or loose they thought that they would win. The problem is the derivative markets are a recipe for disaster since they allowed so called finacially responsible companies to take on huge risk because they think its all insured. Look at what happened to AIG they had to pay out billions to Hedge fund managers who made a fortune actively betting on the market to fail. Lack of regulation caused the Housing bubble. The Feds lowered the prime rate after 911 and greedy mortgage firms ran up the hype saying that the interest rates are the lowest they have been in a lifetime. You have to buy a house now and lots of stupid people signed up for sub-prime loans with no money down. The investment banks realizing that there was lots of potentially bad debt there created the complex derivatives to insulate themself from this debt and wrongly they kept taking on more risks since they thought that they were too smart to fail. Come 2007 when foreclosures started it was soon found that many of the homes were not worth as much as the mortgage amount and the derivatives came into play was the twisting of the blade that nearly killed out great country. Now the Republicans says the Wall street can regulate themselves? This is a prime example of why we need to have some regulation Free market economies with out finacial oversight is risky business since the ultimate greedy bastards will play with peoples fortunes all to make a quick buck and they do not care if they destroy the economy as long as they get theirs. Their mantra is screw you I got mine. Don't let the Fox run the chicken coop again.
Someone, Jamie Dimon and his shareholders suffered losses. They didn't hide the fact or steal customer funds. Buit as long as you are on the subject lets talk about Jon Corzine (D) and large cammpaign contributor to Obama and other democrats. Why is he not in jail after STEALING customer funds, and then lying to Congress...
Maybe someone needs to ask if Mr. Obama and the host of other democrats, if they will return his campaign contributions and arrest and try this real thief... 1.2 billion in customer money is still missing and people want to know after Dodd/Frank how such thefts cannot land Mr. Corzine in jail...
Hypocritical of Banks and Government to expect sympathy for taking big gambling risks with other peoples money, and lose.
Yet, they are so quick to bad mouth the poor, for risking all they have to buy a house, while encouraging them to buy lotto tickets, and calling them stupid for not being able to balance their checkbook.
Our government and the Federal Reserve are supposed to have the best accountants the Ivy league can produce, yet they all fail to be accountable? No, I don't think so. I believe that they enjoy a situation that they calculated a win win for them and a to bad for us.
Do the math, They're crooked as hell.
T/A's Hero........Here's the gist, My Bank is suppose to keep my money safe, pay me some interest and give me a few services........AND THEN...
Loan money to me, my neighbors, or business of good faith in my area; Maybe my Region?
They charge us interest, and for certain/selected services....
And we are happy, safe and secure........
My Investment house,should do something similiar and I should make the choices of what i want to invest in, by me taking part....I also assume some of the RISK
AND NONE of THEM, SHOULD BE DOING ANYTHING SHADY or QUESTIONABLE......
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[BRIEFING.COM] Stocks entered the weekend on a mixed note as the S&P 500 shed 0.1% while the Dow ended with a gain of 0.1%.
The major averages began the day on a lower note as nine of ten sectors saw losses of more than 0.5%.
The consumer staples sector was the lone exception as the group spent the entire day in positive territory thanks to the relative strength of Dow component Procter & Gamble (PG 81.89, +3.19). The second-largest staple stock advanced ... More
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