Despite lingering concerns about the economic outlook, market ends the week higher
US Market made a weak end for a strong quarter with indices slipping on the last day of the week ending on Friday, 28 September, 2007. Strong economic reports on Friday failed to take indices higher on that day. But the Dow Jones Industrial Average and Nasdaq managed to register modest gains for the week. S&P 500 was almost unchanged.
The Dow Jones Industrial Average gained 75 points for the week. Tech - heavy Nasdaq gained 30 points and S&P 500 gained just 1 point.
For the quarter the Dow, Nasdaq, and S&P 500 gained 3.6%, 3.8%, 1.6% respectively. The dollar index dropped more than 5%. Gold prices reached a 27 year high. Crude prices once again touched $83/barel mark but fell back to $81/barrel at the month's end.
Market started off on a weak note on Monday, 24 September, 2007 after 73,000 workers in the United Auto Workers union went on strike against General Motors, as the two sides failed to reach an agreement over cuts in health care costs and union demanded to keep U.S. production jobs.
The financial stocks were also hard hit following reports that Deutsche Bank might have to take a big write-down of its leveraged loan commitments. There was also news that Barclays might be selling its subprime unit at a loss. Dow closed lower by 61 points on that day.
Reduced sales forecast from top two retailers put market in a tug-of war situation for most part of the day on Tuesday, 25 September, 2007. Retailer, Lowe's said that it expects FY07 earnings to be at the low end of prior guidance, or slightly below. Another retailer, Target, citing weak guest traffic, lowered its September same-store sales growth forecast to a range of 1.5% to 2.5% from 4.0% to 6.0%. Nevertheless, Dow closed higher by 19 points.
Indices rallied in the final hours of trading on Wednesday, 26 September, 2007 after GM and Bear Sterns gave market some good pieces of news. General Motors and the United Auto Workers union reached a tentative labor agreement. On the Bear Sterns front, The New York Times reported that the company is interested in selling its minority stake and there were rumors flying that Warren Buffet, Bank of America and Wachovia are potentially interested candidates.
On Thursday, 27 September, 2007, investors were rattled by a bleak new home sales report. Sale of new homes fell 8.3% in August and 21% from a year ago to a seasonally adjusted annual rate of 795,000, which was the worst level since June 2000. Stll Dow closed higher by 35 points due to good support from Energy sector.
But on Friday, 28 September, 2007, investors digested a large batch of economic news and lingering concerns about the outlook for corporate earnings and the economy.
August personal consumption expenditures, which make up over 70% of GDP, rose a stronger than expected 0.6%. The core PCE deflator – a closely watched gauge of inflation – was up just 0.1% for the month. The y-o-y increase in the core PCE deflator was a low 1.8%.
Comments from St. Louis Fed President William Poole caused a bit of a stir near the end of Friday's trading after he reportedly said it would be a mistake for markets to bet on more rate cuts. That comment erased earlier gains in the Treasury market and sent the major indices to their lows for the session. Dow slipped 17 points on that day.
Among other economic data that were released during the week, the Commerce Department reported that orders for durable goods fell 4.9% in August, indicating growing concerns that business spending might not be strong enough. Orders fell in August after a 6.1% gain in July; the drop was the biggest monthly decline since January.
Executive Summary
For the week, the indices closed modestly up. DJIx was up by 0.54% and S&P 500 was up by 0.07%. Nasdaq was up by 1.13%. Despite lingering concerns about the economic outlook, the three major averages ended the week higher.
The dollar index dropped more than 5% in the past three months. Gold prices reached a 27 year high. Crude prices once again touched $83/barel mark but fell back to $81/barrel at the month's end.
History says that September is generally the worst month of the year. But in nine years, this was the best September for market. For the year, Dow is up by 11.5%, Nasdaq is up by 11.8% and S&P 500 is up by 7.6%.
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