Positive economic reports and President's plans to bail out certain subprime borrowers inject enthusiasm
It was quite a turbulent week in the US Market for the week that ended on Friday, 7 December, 2007. But market continued to be troubled by ongoing problems in the housing and credit markets and mounting concerns about the overall health of the economy. Economic reports dominated the week. Nevertheless, at the end of the week, the indices registered good gains.
The Dow Jones Industrial Average gained 254 points for the week. Tech - heavy Nasdaq gained 45 points. S&P 500 gained 23 points.
Market suffered losses during the first two days of the week, Monday, 3 December and Tuesday, 4 December. Dow lost almost 120 points in those two days. Disappointing guidance from Merck and JPMorgan trimming its earnings estimate on a number of brokerage firms weighed on investor sentiments. A positive report from the manufacturing front was ignored.
The Institute for Supply Management's index showed stable manufacturing conditions with a level of 50.8 for November, compared to 50.9 in October. A reading above 50 is intended to reflect growth.
On Wednesday, 5 December, market gained back momentum. Dow Jones industrial Average ended the day with a gain of 196.23 points. The main focus of the day was the ADP employment estimate. The reading showed that November private payrolls increased by a very strong 189,000, more than triple the consensus expectation.
Also, a report that showed non-farm productivity rose 6.3% in the third quarter, up from a preliminary estimate of 4.9%.
Market once again rallied on Thursday, 6 December. The stock market rallied as President Bush announced a plan to help certain subprime borrowers at risk of losing their homes. Also, new data showed new claims for unemployment for the week ended 1 December fell to 338,000 from 353,000 the week before, reflecting continued strong employment conditions.
Market ended almost flat on Friday, 7 December, 2007. Market failed to extend gains from good employment report that had hit the wires earlier during the week. On Friday, Labor Department's latest report showed that 94,000 jobs were added to payrolls in November, while unemployment held steady at a 4.7% rate. That was a 0.8% annual rate of increase in payrolls. The October increase was also revised to show an increase of 170,000 from a previously reported 166,000 gain.
Executive Summary
For the week, indices registered good gains. DJIx and S&P 500 closed up by 1.9% and 1.6% respectively. Nasdaq too gained 1.7%. President Bush's plans to save certain subprime borrowers at risk of losing their homes cheered investors. Other than that, there were some upbeat reports on the employment front.
Market will now focus on the upcoming Federal Reserve Open Committee meeting on 11 December, 2007. Investors are quite hopeful about another interest rate cut. For the year, Dow is up by 9.3%, Nasdaq is up by 12% and S&P 500 is up by 6.1%.