Auto sector pulls US Markets down

Uncertainty over bailout plan of auto sector unnerves investors

Disappointment over the auto bailout plan swept over Wall Street since the very start of the day on Thursday, 11 December, 2008. Though there was some optimistic earning reports, market ignored them and concentrated more on the negative economic reports. The energy sector tried to support the Dow with crude up by more than 10% today on hopes of production cuts by OPEC. The Dow flirted in the positive territory for a brief period, it soon slipped back in the red. Losses increased in the last hour of trading.

On Wall Street, the Dow Jones industrial average closed down 196 points at 8,565, the Nasdaq closed down by 57 points at 1,507 and the S&P 500 moved down 25 points at 873.

Nine out of ten sectors ended in the red today led by the financial sector. Financials continued to be a major laggard today. GM led the pack of Dow laggards down by 11%, closely followed by Bank of America, Citigroup and JP Morgan Chase.

As per the latest developments in the auto deal workout, late Wednesday, the House of Representatives approved a $14 billion federal loan package to the Big Three automakers in a 237-170 vote. However, the plan is expected to encounter resistance from the Senate.

Among major economic reports hitting the wires today, the Labor Department reported today that that the number of first-time filings for state unemployment benefits jumped by 58,000 to a 26-year high of 573,000. The number of people collecting unemployment benefits rose by 338,000 to stand at 4.43 million, also the highest since late 1982. The increase in continuing claims in the week ended 29 November was the most since 1974.

Initial claims represent job destruction, while the level of continuing claims indicates how hard or easy it is for displaced workers to find new jobs.

The jobless claims report shows businesses are laying off workers at a rapid pace, and finding employment is ever harder for those who've lost their jobs. Compared with the same week a year ago, new jobless claims are up about 59%, while continuing claims are up 58%. In November, 533,000 nonfarm payroll jobs were lost, the most for a single month since 1974. The economy has shed 1.9 million jobs since the recession began in December 2007.

In a separate report, The US Department of Commerce, announced today that the October trade deficit climbed to $57.2 billion from $56.6 billion, which was unexpected. According to the data, exports dropped significantly and have been down three straight months. This is due to weak overseas demand and the strengthening dollar. Total October exports of $151.7 billion and imports of $208.9 billion resulted in a goods and services deficit of $57.2 billion, up from $56.6 billion in September, revised.

On the earnings front, wholesaler Costco topped earnings per share expectations for the latest quarter. Dow component Procter & Gamble confirmed its second quarter and fiscal 2009 outlook earlier today. Eli Lilly reaffirmed its outlook for fiscal 2008, and issued upside guidance for fiscal 2009. Despite these positive news, market failed to gather any sort of momentum.

October exports were $3.4 billion less than September exports of $155.1 billion. October imports were $2.7 billion less than September imports of $211.6 billion.

Crude prices shot up drastically today. This was the second consecutive rise for crude prices. Prices rose today due to the weak dollar and the on anticipation that OPEC will go for a drastic production cut in its next meeting scheduled next week.

On Thursday, crude-oil futures for light sweet crude for January delivery closed at $47.98/barrel (higher by $4.46 or 10.2%) on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $49.12. For this year in 2008, crude prices have dropped 40%.

Trading volumes showed 1.4 billion shares exchanging hands on the New York Stock Exchange and 812 million trading on the Nasdaq stock market. Declining issues topped gainers by 3 to 1 on both the NYSE and on Nasdaq.

Tomorrow's economic reports include Producer Price Index, Retail Sales data, Business Inventories and Preliminary University of Michigan Consumer Sentiment.