US stocks swoon before recovering mid-week, Aug. 24-28

U.S. equities were in free-fall during the first two days of the week, as Chinese stock indexes plunged nearly 9% and 8%, respectively — among their worst performances since December 1996 — while the price of West Texas Intermediate (WTI) crude fell US$2.21 per barrel to US$38.24 on Monday. The panic subsided on Wednesday, however, after the Chinese government cut key interest rates by 25 basis points and reserve requirements at large commercial banks by 50 basis points. China’s stimulus measures lifted both the Dow Jones Industrial Average and the S&P 500 by nearly 4% each on Wednesday. U.S. crude also rallied in the second half of the week, with WTI crude surging US$3.96 per barrel on Friday to close at US$42.56. Data showing real GDP in the U.S. increased at an annual rate of 3.7% in the second quarter, up from 0.6% in the first quarter, further buoyed the markets. For the week, the Dow Jones Industrial Average rose 1.11% to 16,643.01 and the S&P 500 climbed 0.91% to 1,988.87. Gold fell 2.29% to US$1,133.80 per oz. and the Philadelphia Gold and Silver Index dropped 6.42% to 48.82.

An investment by billionaire activist investor Carl Icahn and revised capital and operating plans in response to falling commodity prices put Freeport-McMoRan at the top of the list of most actively traded stocks. Icahn now holds an 8.5% stake in the company and in his filings with the Securities and Exchange Commission said he would like to have meetings with management and perhaps a seat on the board. In response, Freeport said it “welcomes constructive input toward our common goal of enhancing shareholder value.” In terms of cost-cutting, Freeport is seeking a 25% reduction (US$700 million) in estimated mining capital expenditures in 2016. The company also said it will cut copper sales by 150 million pounds a year in 2016 and in 2017. In addition it hopes to cut production and delivery costs by 20% in 2016. Freeport’s shares rose US92¢ to US$10.50 per share.

BHP Billiton climbed US$2.01 to US$36.69 per share. The company reported that after-tax profit fell 86% to US$1.9 billion during the financial year ended June 30. Revenues declined 22.2% year-on-year to US$52.27 billion. Capital and exploration expenditures slid by 24% to US$11 billion and are expected to decline to US$8.5 billion in the 2016 financial year and to US$7 billion in 2017. BHP has been successful in cutting costs, however, reporting that it has reduced US$3.8 billion per year in controllable items.