Home' Trinidad and Tobago Guardian : March 8th 2015 Contents MARCH 8 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG9
A strong jobs report shook up
the financial markets on Friday.
US employers added 295,000
jobs last month, the government
said. That was more than econ-
omists were expecting and, com-
bined with a drop in the unem-
ployment rate, raised the likelihood
of the Federal Reserve raising inter-
est rates sooner than had previ-
ously been expected.
The dollar surged and Treasuries
fell as investors factored in the pos-
sibility that the Fed could imple-
ment its first rate hike in almost
a decade as soon as June. The
prospects of higher interest rates
sent stocks tumbling. The market
logged its worst day in two months.
Fed policy makers have held
interest rates close to zero for more
than six years in an effort to stim-
ulate growth and boost the econ-
omy. That stimulus has helped
underpin a six-year bull market in
"We re moving to another chap-
ter here," said Jim Russell, a port-
folio manager at Bahl and Gaynor,
a wealth manager. "Certainly, the
number does put pressure on the
Fed to move."
The Standard & Poor s 500 index
fell 29.78 points, or 1.4 per cent,
to 2,071.26. The Dow Jones indus-
trial average dropped 278.94 points,
or 1.5 per cent, to 17,856.78. The
Nasdaq composite fell 55.44 points,
or 1.1 per cent, to 4,927.37.
Stocks opened lower and the
losses accelerated throughout the
day. By the close of trading the
S&P 500 index had logged its
biggest one-day loss since Jan. 5.
Government bonds fell as
investors factored in a higher prob-
ability of a summer rate hike. The
yield on the benchmark 10-year
Treasury note jumped to 2.25 per
cent from 2.12 per cent late Thurs-
Stocks that pay rich dividends,
such as utilities, telecommunica-
tion companies and real estate
investment companies, slumped
the most. These stocks have been
popular while interest rates on
bonds have remained low. If inter-
est rates on bonds rise, they
become less attractive by compar-
ison. The Dow Jones utility average
plunged 3.1 per cent. It s down 7.8
per cent this year.
Some investors said that the
sharp sell-off was an overreaction.
"The Fed is not going to raise
interest rates from zero to five per
cent overnight," said Kevin Mahn,
Chief Investment Officer of Hen-
nion & Walsh Asset Management.
Mahn says that investors should
remember that if interest rates are
going up, it s because the economy
is getting stronger, and while rates
may rise this year, they remain low
by historical standards.
Financial stocks were among
those that fared better on Friday,
logging the smallest loss in the
S&P 500 index.
Higher interest rates are generally
good for financial companies such
as banks because they can lend at
higher rates. Banks also rose a day
after the Federal Reserve
announced that major U.S. lenders
had all passed the Fed s annual
"stress tests," which are designed
to gauge whether lenders are strong
enough to withstand severe dis-
ruptions to the financial system.
Bank of America rose 22 cents, or
1.4 per cent, to US$16.22, one of
the biggest gains in the S&P 500.
Apple was another stock that
managed to buck the trend and eke out
a small gain.
The company will replace AT&T in
the Dow Jones industrial average on
March 19, the manager of the index
announced Friday. S&P Dow Jones,
which manages the index, cast the move
as a sort of a housekeeping maneuver,
a way of ensuring that the index better
reflects the US economy and markets.
Apple, the world s most valuable
publicly traded company, gained 19
cents, or 0.2 per cent, to US$126.60.
The company s market value is about
US$736 billion, according to FactSet
The dollar jumped after the release
of the job figures as traders priced in
an earlier rate hike. The euro, already
at 12-year lows, slid to US$1.0848. The
dollar also rose against the Japanese
yen, climbing to 120.72 yen.
While a stronger dollar is a boon to
US consumers because it helps make
imported goods less expensive, it is a
burden to big companies that rely on
overseas sales for a lot of their revenue.
Global corporations from Coca-Cola
to Avon Products have said this year
that their earnings have been affected
by the strengthening U.S. currency. A
rising dollar means that the sales they
make abroad are worth less in dollar
In energy trading, the price of US oil
fell sharply after the strong jobs report
pushed up the value of the dollar. That
made oil a less attractive investment
for overseas buyers. Benchmark US
crude fell US$1.15 to close at US$49.61
a barrel in New York. Oil finished the
week down 25 cents. Brent crude, a
benchmark for international oils used
by many US refineries, fell 75 cents to
close at US$59.73 a barrel in London.
Precious and industrial metals futures
fell sharply. Gold fell US$31.90 to
US$1,164.30 an ounce, silver fell 35
cents to US$15.81 an ounce and copper
lost four cents to US$2.61 a pound.
In other futures trading on the
--- Wholesale gasoline fell 0.5 cent
to close at US$1.882 a gallon.
--- Heating oil fell 0.8 cents to close
at US$1.869 a gallon.
--- Natural gas fell 0.2 cent to close
at US$2.839 per 1,000 cubic feet.
How does the Dow
Apple will be joining the Dow Jones in-
dustrial average, an elite club of 30 ma-
jor U.S. companies, on March 19, re-
placing AT&T. Here s a look at the fa-
mous barometer of the U.S. stock mar-
ket and how it works.
Q: Why is Apple being added to the
Dow Jones industrial average?
A: S&P Dow Jones indices, which admin-
isters the Dow and other stock market
indicators, said the change was prompted
by a four-to-one stock split for Visa,
which would greatly reduce the repre-
sentation of technology companies in the
index. Adding Apple would help offset
that. The big reduction in Visa s stock
price that will be caused by the split will
result in Visa having a much smaller
effect on the Dow s movements.
Q: What is the Dow Jones Industrial
A: The Dow Jones industrial average is
a popular gauge of the health of the stock
market. It was created in 1896 by Charles
H. Dow, one of the founders of The Wall
Street Journal, with the intention of giving
the stock market credibility and making
investing more understandable. The orig-
inal index had 12 members. The number
of companies making up the Dow grad-
ually increased to 30 by 1928.
The index includes some of the biggest
household names: Microsoft, American
Express, Wal-Mart and General Electric,
which has been in the index since 1907.
Q: How does the Dow work?
A: The Dow is a price-weighted index,
which means it s calculated based on
movements in the price of every com-
pany s stock in the index, irrespective of
how large the company s value is. So,
every change of US$1 in any of the 30
stocks in the index results in the same
amount of point change in the index,
currently around 6.42. That number will
change slightly when Apple is added and
AT&T comes out.
Q: How do stock prices affect the
A: After Apple enters the Dow after the
close of trading on March 18 and Visa
splits its stock, Goldman Sachs, which
was trading at about US$186 a share on
Friday, will likely be the most expensive
stock in the index, while Intel will be one
of the cheapest. Intel was trading at about
US$33 a share on Friday. It s a lot easier
for Goldman Sachs to move US$1 a share,
which represents a change of just 0.5
percent, versus Intel, where a $1 move
represents 3 per cent. Notwithstanding
that difference, a US$1 move in either
Goldman Sachs or Intel will move the
Dow by the same amount, 6.42 points,
even though Intel is worth about double
what Goldman Sachs is.
Q: What about other indices?
A: Professional investors tend to more
closely follow the Standard & Poor s 500
index, which not only tracks far more
companies, 500 versus 30 for the Dow,
but also takes into account the size of a
company s market value in determining
how much sway that stock has over the
US stocks drop:
Strong jobs report raises rate hike prospect
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