Stocks continue to show notable weakness in early afternoon trading on Tuesday, as investors lock in profits following the massive gains seen in the previous session. Nonetheless, selling pressure has remained somewhat subdued, allowing the major averages to hold onto the bulk of Monday's gains.
The relatively limited weakness in the markets comes as some traders are keeping a close eye on Capitol Hill and the testimony of Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim before the Geithner before the House Financial Services Committee.
In prepared remarks, Bernanke said that the bonuses paid to employees of AIG (AIG) were highly inappropriate. At the same time, Bernanke outlined the reasoning behind the government's repeated interventions to prop up AIG despite severe mismanagement within the embattled insurance giant.
The Fed Chairman added that AIG must scrupulously avoid any excessive and unwarranted compensation.
We have pressed AIG to ensure that all compensation decisions are covered by robust corporate governance, including internal review, review by the Compensation Committee of the Board of Directors, and consultations with outside experts, Bernanke said.
Meanwhile, Geithner suggested that the near-collapse of the systemically important insurer highlights broad failures of the U.S. financial system. He went on to call the $165 million in bonus payments deeply troubling, and outlined the Treasury's efforts to recoup the bonuses.
Geithner pledged to work on improving the regulatory structure in order to prevent another similar situation.
I share the anger and frustration of the American people, not just about the compensation practices at AIG and in other parts of our financial system, but that our system permitted a scale of risk-taking that has caused grave damage to the fortunes of all Americans, Geithner said.
In related news, the massive AIG backlash has driven other banks to work to return government funds as soon as possible.
According to the Wall Street Journal, Goldman Sachs (GS) may sell its stake in the Industrial and Commercial Bank of China to help it repay $10 billion of what it received under the TARP. The New York Times reported that the repayment could come within a month.
The major averages have been more or less rangebound in recent trading, stuck firmly in negative territory. The Dow is currently down 55.99 at 7,719.87, the Nasdaq is down 24.86 at 1,530.91 and the S&P 500 is down 7.49 at 815.43.
Most of the major sectors continue to experience considerable weakness on the day after the vast majority of sectors showed substantial upward moves in the previous session.
Despite a notable increase by the price of oil, the airline sector is turning in one of the market's worst performances. The Amex Airline Index is currently down 3.7 percent, nearly offsetting the 4.4 percent gain that it posted on Monday.
Within the airline sector, Ryanair Holdings (RYAAY) is showing a notable decline, with the discount airline currently down 5.9 percent. With the loss, Ryanair is pulling back well off the nearly three-week closing high it set in the previous session.
The weakness in the sector is partly due to a revised outlook for the global air transport industry at the International Air Transport Association, which said it now expects the industry to report a loss of $4.7 billion in 2009 compared to its December forecast for a loss of $2.5 billion.
Resource stocks also continued to see considerable weakness amid decreases in most commodities prices, with natural gas and gold stocks posting steep losses. Significant weakness is also visible among health insurance, banking, and semiconductor stocks.
At the other end of the spectrum, computer hardware stocks continue to buck the dowtrend by the broader markets, contributing to a 1.5 percent gain by the Amex Computer Hardware Index. Palm (PALM) is helping to lead the sector higher, rising 9.1 percent.
Stocks In The News
Among individual stocks, McCormick & Co. (MKC) is posting a loss of 8.3 percent after the spices and seasonings company provided disappointing guidance. With the decline, the stock has pulled back well off the nearly five-month closing high it set in the previous session.
While McCormick reaffirmed its full year earnings guidance in the range of $2.24 to $2.28 per share, the company said it expects its full year sales growth to be at the lower of its forecast 2 to 4 percent range as a result of first quarter sales weakness in certain parts of its business.
Additionally, Newell Rubbermaid (NWL) is down 6.2 percent on the day after the company said that its board authorized a reduction in its quarterly common stock dividend to $0.05 per share from $0.105 per share.
Meanwhile, Phillips-Van Heusen Corp. (PVH) is up 7.3 percent on the day after the company posted fourth quarter earnings excluding restructuring items of $0.30 per share. On average, analysts expected the company to report earnings of $0.28 per share.
In overseas trading, stock markets across the Asia-Pacific region posted substantial gains on Tuesday, benefiting from the rally seen on Wall Street overnight. Japan's benchmark Nikkei 225 Index extended a recent upward move with a 3.3 percent gain.
Meanwhile, the major European markets are once again showing uncertainty. While the U.K.'s FTSE 100 Index is down 1.4 percent, the French CAC 40 Index and the German DAX Index are posting gains of 0.2 percent and 0.3 percent, respectively.
In the bond market, treasuries are extending a recent downward move, further offsetting the substantial rally that was seen last Wednesday. Subsequently, the yield on the benchmark 10-year note is currently up 5.7 basis points at 2.717 percent.
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