Dow 12,930 (-1.00%) S&P 1,382 (-1.14%)
Ladies and gentlemen, welcome back from the 3-day Easter/Passover weekend – and to our European friends, enjoy the additional day off (most markets from London to Berlin are closed Monday too). Last week was the worst of 2012 so far after the Federal Reserve signaled it would curb monetary stimulus efforts that encourage economic growth and then concerns over the European debt crisis flared up across the Atlantic. The marquee event of the 4-day week though was Friday’s US government employment news for the much of March. But because the stock market was closed for Good Friday, we had to wait until today to see how it would move markets – and boy did it move markets….The Dow suffered its fourth straight loss after diving 130 points to open up the week.
Friday’s worse-than-forecast jobs data pulls bank stocks down
Friday created an unusual situation in which the all-popular government employment report was released (as occurs the first Friday of every month), but the US stock market was closed for the Good Friday holiday. While investors could discuss the news while teeing off over the weekend, they couldn’t act on it by trading until today. On Friday morning, the Labor Department announced that the US added 120,000 non-farm jobs in March after last month’s rise of 227,000 and the unemployment rate slipped from 8.3% to 8.2%. Although the jobs increase was a positive development and the unemployment rate was only expected to remain unchanged, this was the smallest increase in 5 months and falls short of the roughly 200,000 that economists expected. On top of this, analysts point out that the jobless rate mostly dropped because so many unemployed looking for work simply left the labor force and were thus not counted as “employed” anymore. In all, investors broadly considered the mixed March jobs news disappointing, dropping bank stocks like Bank of America (BAC), JP Morgan (JPM) and Citi (C), whose business is closely tied to economic ebbs and flows.
AOL soars after selling patents to Microsoft, while Facebook strategically buys Instagram
Despite what felt like a dark day from start to finish as the employment data hung like a stubborn rain cloud over Wall Street, some companies notably found their way into some Monday sun. AOL (AOL) shot up 43% after agreeing to sell 800 patents to Microsoft (MSFT) in exchange for over $1 Billion. The arrangement provides much-needed cash for the internet service provider who has struggled from the decline in dial-up internet subscribers (when was the last time you asked for someone’s “AIM?” Think about it). Although not public yet, Facebook agreed to purchase the popular photo app company Instagram, which allows users to make meaningless pictures appear somewhat more meaningful by giving them a vintage hue. The $1 Billion deal is the largest for an app-maker, as Facebook looks to utilize the company to strengthen their focus on photo-sharing.
JPMorgan trader causes “prop trading” controversy
The “London Whale;” “Voldemort;” “He who mustn’t be named.” Bruno Iksil is a Frenchmn with a slender frame who is generally considered a decent person (people love to say his name. Try it). None of those nicknames seem to fit his personality, yet that is what hedge fund managers have dubbed this JP Morgan (JPM) trader in London. On Friday he reportedly made some huge trades to hedge JPM’s market positions (making a small investment as an instrument to protect other investments if they go bad – like buying an insurance policy to eliminate risk). Hedging is perfectly legal for banks, but hedge fund managers complain that the trades were so big that they distorted prices, or “moved the market.” These disgruntled HF managers (who probably lost money due to these trades) claim that they were made not to hedge JPM, but to turn a profit for the bank (this is called proprietary trading, or “prop trading”). This incident highlights the Volcker Rule, a financial regulation passed in 2010 named after former Fed Chairman Paul Volcker, who said that banks should not be allowed to make profit-seeking bets with its own money. Big banks will be bailed out by the government if they are in trouble, so most agree it’s unfair for them to make risky bets when they’re backed by the government (and the taxpayers). Whether this qualifies as “prop trading” and the merits of the Volcker rule are discussed by both Bloomberg and the Times.
- The main event Tuesday is the unofficial start of corporate earnings season – analysts are focusing on Aluminum-maker Alcoa (AA) because the first major industrial company reporting will set the tone.
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