Market wrap: Local shares will start the week deep in the red after fraud charges against Goldman Sachs sparked a heavy sell-off on Wall Street on Friday.
The June SPI futures contract closed 48 points lower at 4950, suggesting the stock market will open around 1% down from Friday's close this morning.
Wall Street's longest winning run since 2007 was punctured by Securities and Exchange Commission charges against the Street's most profitable bank over failing to disclose crucial information related to selling mortgage-backed securities. The news sent the Dow Jones Industrial Average down 170 points before a partial recovery saw the index close 126 points or 1.13% lower. The broader S&P 500 slumped 1.61% to its first weekly loss in seven weeks and the Nasdaq was off 1.37%.
The BNY Mellon Australia Classic ADR Index, which tracks Australian companies listed on U.S. stock indexes or sold over the counter in the U.S., slumped 2.32% on Friday.
Shares in Goldman Sachs, the most profitable firm in Wall Street history according to Bloomberg, tumbled nearly 13% and sparked panic in the financial sector as investors speculated that the court action may just be the first of many to emerge from the global financial crisis. Bank indexes closed 2.8 - 3.6% lower, but losses spread through market sectors. Airlines fell 2.8%, precious metals miners 2.6%, REITs 2.3%, oilers 1.4%, industrials 1.4%, insurers 1.2%, utilities 1% and biotechs 1%.
"The market was starting to look for anything to correct on, and this was about as good as it could have gotten," the president of a U.S. fund told MarketWatch of the SEC charges.
Commodity prices slipped as investors retreated to the safety of Treasurys. The 10-year note rose to yield 3.77%, according to MarketWatch.
Crude oil futures tumbled $2.59 or 3% to $83.24 a barrel. The spot gold price fell off a cliff, dropping $22 or 2.1% to $1,136.80 an ounce, disappointing investors who expect its safe-haven status to support the price in times of trouble. Silver and platinum also suffered sharp declines.
This year's strong rally in industrial metals pared gains as most traded near multi-month highs. In London, copper lost 2.3%, aluminium 2.1%, lead 3.9%, nickel 2.3% and zinc 3.8%.
European markets were flat-lining until the Goldman Sachs news sparked a late sell-off. Britain's FTSE fell 1.39%, Germany's DAX 1.76% and France's CAC 1.94%.
TRADING THEMES TODAY
RETURN OF FEAR: Global markets were ripe for a pull-back and Friday's news offered an excuse. The CBOE Market Volatility Index or "fear gauge" last week hit its lowest level since 2007, then jumped 15.5% on Friday. In the short term that's bad news for buy-and-hold investors but active traders will celebrate this shake-up in what had become a turgid market. The Goldman Sachs charges are likely to be a running sore like Greek debt - conveniently forgotten for much of the time once the initial shock has worn off but occasionally rising to spook the market in the months ahead.
U.S. EARNINGS WEEK 2: Investors will hope good news out of the U.S. earnings season will cap further losses filtering down from Friday's Goldman Sachs news. Dow components IBM and Citigroup report tonight. Goldman Sachs and Apple are due to report tomorrow. Also reporting this week: Amex, Morgan Stanley, Boeing and Halliburton.
BOUNCE SCALPING: This week should offer excellent opportunities to make quick profits in early panics as our market absorbs the fall-out from Friday's news. Look for shares caught up in the sell-down in the first half hour that hit support levels hard and fast. The best bounce candidates are shares that have been retreating for a session or two already, have no direct exposure to Friday's selldown and have a propensity to bounce. I find most of my trades in the mid-caps on days like this because many offer range and volatility. Bolder traders may consider setting buy orders below likely opening prices to harvest quick bounces. This strategy has worked well for me.
ECONOMIC NEWS: A slow start to the week with nothing scheduled locally today and just the leading indicators tonight in the U.S. and a speech from Fed chairman Ben Bernanke. Housing is likely to dominate the economic news in the latter part of the week in the U.S., with high hopes that the country's "zombie market" may finally be stirring.
