MARKET SNAPSHOT: U.S. Stocks Slump As World Reacts To Dubai Gloom
By Peter McKay
Stocks slumped Friday as U.S. investors reacted to the global sell-off
triggered by a debt crisis in Dubai.
Crude oil neared a six-week low, gold tumbled and the dollar and Treasurys
surged as worried investors fled riskier assets and moved into safer havens.
The stock market's slide began in Europe on Thursday and continued in Asia on
Friday after Dubai said it would delay debt repayments from its investment
company, Dubai World. The decision raised broader questions about the safety of
emerging-market debt and the strength of the global recovery.
The Dow Jones Industrial Average (DJI) was recently down 131 points, or 1.3%,
to 10,333.58 and had fallen as low as 10,231. All 30 of its components were in
the red, led by Alcoa (AA), which dropped 2.8%, and Caterpillar (CAT), which
fell 2.4%.
The Nasdaq Composite Index (RIXF) fell 1.1%.
The Standard & Poor's 500 (SPX) dropped 2%. All its sectors were in the red,
led by its energy and materials sectors, which were down about 2.8% each.
Oil futures hit a six-week low and were recently at $73.66 a barrel, while
gold also fell sharply, down $33.10 recently at $1155.50 an ounce.
"This is an interesting twist, and we don't know whether this will be just a
blip or a big concern," said Deborah Danielson, president of Danielson Financial
Group. She added that, as of Wednesday's close, when the Dow hit a new 13-month
closing high, "everything seemed to be pretty much OK and better than expected."
In a Thanksgiving note to clients, David Kotok, president of the portfolio-
management firm Cumberland Advisors, warned of potential contagion from the
Dubai crisis. "We want to see the market make the adjustment for this risk
before we resume a fully invested posture," in stocks, Kotok wrote. His firm has
recently been building its cash reserves.
In Asia, Japan's Nikkei stock average slid 3.2%. Hong Kong's Hang Seng index
tumbled 4.8%. South Korea's benchmark dropped 4.7%. The MSCI index, a key
measure of emerging-market shares, fell 1.3% to a 2-1/2 week low.
On Wall Street, Chevron (CVX) and Exxon Mobil (XOM) were among the energy
stocks that fell, while AK Steel (AKS) and Freeport-McMoRan Copper & Gold (FCX)
were among the metals decliners. According to data from the federal Energy
Information Administration, the United Arab Emirates was the world's eighth-
largest oil producer in 2008. It is also believed to hold a sizable official
reserve of gold.
The declines in commodities came as investors moved into the dollar and
Treasurys, reflecting a renewed fear of risky assets given the concerns over
Dubai World's debt. The U.S. Dollar Index (DXY) , which measures the greenback
against a basket of six other currencies, rose 0.6% recently.
The 10-year Treasury bond slid 12/16 to yield 3.223%.
The U.S. stock market will close at 1 p.m. Eastern for the holiday weekend,
and Wall Street trading is known for being particularly thin the day after
Thanksgiving.
"Everything seemed to be pretty much OK and better than expected, so this is
an interesting twist and we don't know whether this will be just a blip or a big
concern," said Deborah Danielson, president of Danielson Financial Group.
Jeff Grossman, a commodity trader at BRG Brokerage in New York, said the
slides in both oil and gold could continue in the days ahead as investors with
exposure to Dubai World sell other assets to cover their losses. Coming into
Friday's session, oil was up about 75% for the year and gold was up about 34% --
gains that could now prove to be an attractive source of cash for investors who
have ridden out the boom.
And given the timing after the Thanksgiving holiday, the market reaction on
Friday may not reflect as big of a reaction to the Dubai World troubled as
Monday's action could, Danielson noted.
While institutional investors are aware of the news, many of them weren't at
work Friday. Retail investors, on the other hand, are likely just hearing the
news and haven't yet had time to think about its potential ramifications.
"It's a short trading day, and the news came out but people had other plans,"
Danielson said. "A lot of people are traveling. It will be more interesting to
see what happens Monday after they've had a chance to digest it."
The unofficial start to the holiday shopping season, known as Black Friday,
has typically been the focus for the market the day after Thanksgiving. This
year, investors said they would be paying particular attention to what the Black
Friday sales would indicate about the state of the consumer and whether Dow's
60% jump since its 12-year low on March 9 could be justified. However, the Dubai
World news appears to have stolen Black Friday's thunder.
Fears have been spreading since late Wednesday about the potential fallout of
debt problems at Dubai World, the city-state's largest corporate entity, which
asked creditors for a six-month stay on repayment of its $60 billion in debts.
U.S. markets were unable to immediately react as they were closed for the
Thanksgiving holiday Thursday, but the Asia and Europe markets sold off Thursday
on the news. European banks and most other shares later erased their losses.
Michael Church, president of Addison Capital, said that gives him hope that
the impact of Dubai World's debt problems might not be too drastic for the U.S.
stock market.
"Until we get more information, I'm not sure this is more than a bit of a
kneejerk reaction," Church said. He added, "This is a difficult day because you
have a half day, you have a lot of people not at desks today, it's odd news to
begin with, and not a lot of information is out as to how it's going to shape
out. We'll be treating it at face value, just watching it unfold for now."
(END) Dow Jones Newswires
11-27-091208ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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