US Market tries to make a comeback
Freddie Mac and Fannie Mae remained the headlines during the course of
the week that ended on Friday, 22 August, 2008. The battered financial
sector, negative data on the housing front, volatile crude prices and a
few earning reports dominated the headlines during the week. Dollar
remained relatively strong though lost 1.2% to the euro during the
course of the week. Stocks at Wall Street registered losses on all the
days of the week barring the last day, Friday, 22 August. Volume of
trading remained relatively light during the course of the week.
The Dow Jones Industrial Average lost 31.84 points for the week to end
at 11,628.06. Tech - heavy Nasdaq lost 37.81 points at 2,414.71.
S&P 500 lost 6 points to end at 1,292.2.
The financials
sector continued to be under pressure even today after Fannie Mae and
Freddie Mac reports that they will need to be bailed out by the federal
government sooner than was previously thought. This continued to create
turmoil in the finance sector off and on.
The sector also came
under pressure after Bank of America was named in The Wall Street
Journal as being the focus of increased probes from the New York
Attorney General regarding auction rate securities. S&P Financial
sector dropped 2.4% and 6.5%, respectively, in the first two days of
trading.
In the US stock market on Friday, 22 August, despite
low volumes, US stocks rallied. The rally was broad based and there
were a couple of catalysts for the rally. Comments from famous investor
Warren Buffet and Fed Chairman Ben Bernanke gave US stocks a good
reason to rally on Friday. The dollar also strengthened and financial
sector also climbed up on reports that Korea Development Bank has shown
interest in acquiring Lehman Brothers.
The Dow Jones
industrial Average ended the day with a gain of 197.85 points at
11,628.06. The Nasdaq Composite Index, finished higher by 34.3 points
at 2,414.71. S&P 500 finished higher by 14.48 points at 1,292.2.
Famed investor Warren Buffett stated in an interview that Fannie Mae
and Freddie Macare looking for private investment and also offered
positive comments on the attractive values currently offered by stocks
and said that he doesn't have any bets against the dollar.
Elsewhere, Fed Chairman Ben Bernanke said on Friday that the declines
in commodity prices and the stability of the dollar are encouraging as
their trends are likely to slow inflation. He also stated that
inflation will be further helped as the U.S. economy falls short of its
growth potential for a time. Still, the inflation outlook is highly
uncertain.
The economic data seen during the week were mixed,
but mostly negative in nature. The Commerce Department reported that
the number of new homes starting construction in July has sharply
dropped. The number of new single-family permits dropped to the lowest
level in 26 years. Builders are cutting back their production of new
homes and trying to work off unsold inventory. Rising foreclosures on
existing homes are complicating the builders' efforts to bring supply
back down to meet sluggish demand. Housing starts fell 11% to a
seasonally adjusted annual rate of 965,000 in July, 2008.It marked the
lowest level for housing starts in 17 years. June's starts were revised
higher to a 1.084 million annual pace. Housing starts are down 29.6% in
the past year.
The Labor Department reported that U.S.
producer prices rose by a bigger-than-expected 1.2% in July. It was
driven higher by prices for energy, food and other products. Market was
looking for an increase of 0.3% in July. Excluding food and energy,
producer prices rose 0.7% in the month, which was also higher than
expected. In July, energy prices rose 3.1% and food prices climbed by
0.3%.
Also, initial jobless claims for the week ending 16 August
totaled 432,000, which was below the 440,000 expected. Claims fell
13,000 relative to the prior week's downwardly revised total. Still,
the 4-week moving average for jobless claims advanced to 445,750 from
438,500.
In a separate report, the Conference Board in USA
reported that the leading economic indicators for July dipped 0.7%. The
leading index is designed to forecast turning points in the economy.
Market was looking for a 0.2% decline. The report pointed to slow
growth the rest of the year and possibly an economy grinding to a halt.
Among earning report for the week, Dow component
Hewlett-Packard turned in another solid earnings report and provided a
reassuring outlook. Meanwhile, several retailers, including Home Depot,
Target and Gap reported relatively good results.
At the crude
market at US on Friday, crude-oil futures dropped more than 5%,
reversing the rally in the previous session, as a stronger U.S. dollar
and ongoing concerns about a slowdown in demand pressured crude prices.
Crude prices for October delivery closed at $114.59 (lower by $6.6 or
5.4%). For the week it managed to end higher by a little 0.6%.
Executive Summary
For the week, indices registered little losses. In percentage terms,
Dow and Nasdaq lost 0.3% and 1.5% respectively. S&P 500 lost 0.5%.
Negative economic reports and Freddie Mac and Fannie Mae dominated the
headlines during the week which witnessed relatively less volumes in
trading. Indices registered gains only on the last day of the week.
For the year, Dow, Nasdaq and S&P 500 are down by 12.3%, 12% and 9% respectively.
Developments surrounding the Government sponsored enterprises (GSEs)
will be the thing to watch in the coming week, along with oil prices
and some key economic reports for existing home sales, new home sales,
Q2 GDP (revised), and personal income and spending.
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