Disappointing earnings and more bluster from Capitol Hill pulled the three major US indexes down roughly 3 percent. Thus far in 2010 the Dow Jones Industrial Average, NASDAQ Composite and S&P 500 are all in the red.
Amid calls from Republican Senator John McCain (R-AZ) to reinstate the Glass-Steagall Act’s regulatory restrictions, President Obama outlined a plan to restrict financial institutions’ trading activities and prevent commercial banks and organizations that own banks from “owning, investing in or sponsoring” private-equity and hedge funds. The administration is also seeking to toughen existing limits on the size of financial firms. Former Federal Reserve head Paul Volcker has advocated for all of these reforms, prompting Obama to refer to these proposals as the “Volcker Rule.”
Aimed at prohibiting banks from engaging in activities that could put their customers at risk, the rules would still institutions to trade risky securities on behalf of clients. Opponents argue that the restrictions would reduce lending and increase risk by limiting the diversity of banks’ assets.
If passed, the new rules could deal a big blow to the nation’s largest banks–Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS). All three generate substantial profits from hedge fund-related activities and financing private-equity deals.
Two more Democratic senators announced that they would vote against Ben Bernanke’s confirmation to serve a second four-year term as chairman of the Federal Reserve. Democratic Senators Barbara Boxer of California and Russell Feingold of Wisconsin both criticized Bernanke’s performance during the financial crisis and echoed sentiments that its time for Main Street to have a champion over Wall Street. As opposition to Bernanke’s reappointment mounts, there’s been speculation that Obama may be forced to withdraw his nomination.
Coupled with the administration’s proposed bank tax, these developments have heightened uncertainty on Wall Street. Lower-than-expected revenue at Google (NSDQ: GOOG) and a weak sales outlook at Advanced Micro Devices (NYSE: AMD) also weighed on investors’ minds.
Meanwhile, lingering concerns over Beijing’s efforts to cool bank lending–and, by extension, economic growth–spilled over to basic materials and energy stocks.’
The economic data this week was lackluster at best. Housing starts declined 4 percent month over month. Ground was broken on 557,000 new projects in December, falling short of the expected 572,000. Issuance of new building permits trumped estimates, jumping 10 percent in December to 653,000. Despite this good news, the National Association of Home Builders Market Index declined from 16 to 15, reflecting expectations of lower sales.
Initial jobless claims increased to 482,000, and continuing claims came in at 4.559 million–slightly higher than expected. A separate report issued by the Bureau of Labor Statistics found that all 50 states ended 2009 with higher unemployment rates than a year earlier.
On a positive note, The Conference Board Leading Economic Index went up 1.1 percent–the ninth consecutive increase. Eight of the 10 indicators improved in December, led by a widening interest rate spread, more building permits and fewer jobless claims.
To the Summit
A panel discussion on the state of the economy. Presentations by each of our expert editors. One-on-one time with those experts. A sunset cruise of San Diego Bay…
April 23-24 could be your most important weekend of the year. GS Early, Elliott Gue, Yiannis Mostrous, Roger Conrad and I will reveal the brightest trends and our best recommendations–and anything else you might want to know–during the 2010 Wealth Society Member Summit at the historic Hotel del Coronado.
They say it’s 72 and sunny every day of the year in San Diego, and in late April it probably will be. Tranquility and relaxation is good; that and the best independent view of global investing make great.
Click here or call 1-800-832-2330 (between 9:00 a.m. and 5:00 p.m. EST Monday through Friday) to find out he you can reserve your seat at the table.
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