Dow sinks below the 11,000 level for the first time in two years
US Market ended the week on Friday, 11 July with moderate losses. But it was the financial sector and the rising crude price that played the role of major villains for the indices registering losses. Upbeat announcement from a major retailer and encouraging economic data were the major reasons as to why the losses were restricted to modest levels.
The Dow Jones Industrial Average lost 188 points for the week to end at 11,100. Tech - heavy Nasdaq lost 6.3 points at 2,239. S&P 500 shed 23.4 points to end at 1,239. In percentage terms, Dow, S&P 500 and Nasdaq lost 1.7%, 1.9% and 0.3% respectively. The Dow fell below the 11,000 level for the first time in two years.
The financial sector came under severe pressure after Fannie Mae and Freddie Mac were two notable laggards in the sector. The two stocks encountered selling pressure throughout the week on news that accounting changes could force the companies to bring off-balance sheet assets on to their books, thus requiring large capital raises. In fact things worsened on reports that the executive branch has been discussing a plan for the government to take over either one or both of them if conditions worsened. It was only during the end of the week when a Reuters source indicated the two lenders would have access to the Fed's discount window did the stocks rally into the green.
Crude prices showed immense volatility during the week. Prices gave up more than $9 during the first two days of the week. But then, it touched an all time high price of $147/barrel. It also gained $9.03 during the last two days of the week. For the week, it ended higher by a marginal 21 cents and ended around $145/barrel.
Crude prices fell during the first part of the week due to the strong dollar. But then, it gained back all of its losses after Middle East tensions cropped up between Iran and Israel and also on weekly inventory report from the Energy department.
Dow component Alcoa marked the start of second quarter earnings season. The aluminum company reported a drop in earnings due to high energy costs, but the results met Wall Street's forecast. GE also reported earnings in line with expectations.
Wal-Mart reported during the week that June same-store sales were up 5.8% thanks to bargain-hunting consumers. In turn, Wal-Mart raised its second quarter earnings outlook also. This gave the bulls a good reason to come to the forefront during the middle of the week.
In other economic news, the National Association of Realtors reported that May pending home sales fell 4.7%, which is slightly more than the expected decline of 2.8%. However, April was revised higher to a gain of 7.1% from a rise of 6.3%. The data indicated that that the home sales market is still weak, but is not deteriorating at the same rate as in 2007.
Separately, weekly initial claims dropped 58K to 346K, well below the consensus estimate of 395K. The two-week average of 375K put claims at a level that was witnessed in mid-March, so it can be said the claims level is fairly stable.
Cisco Systems weighed heavily on the technology sector during the week after the stock fell to a new 52 week low after UBS said that Cisco faces challenges due to slowing sales in the U.S. and Europe.
Among interesting corporate news, Microsoft is reported to be willing to enter discussions with Yahoo! if Yahoo replaces its board of directors. Next, General Electric's NBC Universal is joining Blackstone Group and Bain Capital to purchase The Weather Channel for $3.5 billion. Also, Merrill Lynch might be planning to sell its stakes in holdings like Bloomberg and BlackRock soon which would generate cash to help offset potential write-downs and adjustments.
In the M&A arena, Dow Chemical announced its intent to acquire Rohm & Haas for $78 per share in cash. That price marked a 74% premium for ROH shareholders based on the stock's closing price the day before the deal was announced.
Executive Summary
For the week, indices registered modest losses. In percentage terms, Dow and Nasdaq lost 1.7% and 0.3% respectively. S&P 500 lost 1.9%. It was the battered financial sector and the rising crude price that played the pranks with the market. Government sponsored Freddie Mac and Fannie Mae were reported to be in distressed condition and this worried the investors. On Friday, 11 July, the Dow sank below the 11,000 level during intra day trading for the first time in two years.
For the year, Dow, Nasdaq and S&P 500 are down by 16.3%, 15.6% and 15.6% respectively.
The coming week as a host of important reports both on economic and earnings front. The earnings reporting will kick up several notches with reports from a number of major financial and technology companies. The minutes from the 25 June Federal Open Market Committee (FOMC) meeting will be released and Fed Chairman Bernanke is slated to present his semi-annual testimony before Senate and House committees. Also, on the dock are key inflation reports in the form of the PPI and CPI Indexes, as well as the latest data on retail sales, housing starts and industrial production.
US Market ended the week on Friday, 11 July with moderate losses. But it was the financial sector and the rising crude price that played the role of major villains for the indices registering losses. Upbeat announcement from a major retailer and encouraging economic data were the major reasons as to why the losses were restricted to modest levels.
The Dow Jones Industrial Average lost 188 points for the week to end at 11,100. Tech - heavy Nasdaq lost 6.3 points at 2,239. S&P 500 shed 23.4 points to end at 1,239. In percentage terms, Dow, S&P 500 and Nasdaq lost 1.7%, 1.9% and 0.3% respectively. The Dow fell below the 11,000 level for the first time in two years.
The financial sector came under severe pressure after Fannie Mae and Freddie Mac were two notable laggards in the sector. The two stocks encountered selling pressure throughout the week on news that accounting changes could force the companies to bring off-balance sheet assets on to their books, thus requiring large capital raises. In fact things worsened on reports that the executive branch has been discussing a plan for the government to take over either one or both of them if conditions worsened. It was only during the end of the week when a Reuters source indicated the two lenders would have access to the Fed's discount window did the stocks rally into the green.
Crude prices showed immense volatility during the week. Prices gave up more than $9 during the first two days of the week. But then, it touched an all time high price of $147/barrel. It also gained $9.03 during the last two days of the week. For the week, it ended higher by a marginal 21 cents and ended around $145/barrel.
Crude prices fell during the first part of the week due to the strong dollar. But then, it gained back all of its losses after Middle East tensions cropped up between Iran and Israel and also on weekly inventory report from the Energy department.
Dow component Alcoa marked the start of second quarter earnings season. The aluminum company reported a drop in earnings due to high energy costs, but the results met Wall Street's forecast. GE also reported earnings in line with expectations.
Wal-Mart reported during the week that June same-store sales were up 5.8% thanks to bargain-hunting consumers. In turn, Wal-Mart raised its second quarter earnings outlook also. This gave the bulls a good reason to come to the forefront during the middle of the week.
In other economic news, the National Association of Realtors reported that May pending home sales fell 4.7%, which is slightly more than the expected decline of 2.8%. However, April was revised higher to a gain of 7.1% from a rise of 6.3%. The data indicated that that the home sales market is still weak, but is not deteriorating at the same rate as in 2007.
Separately, weekly initial claims dropped 58K to 346K, well below the consensus estimate of 395K. The two-week average of 375K put claims at a level that was witnessed in mid-March, so it can be said the claims level is fairly stable.
Cisco Systems weighed heavily on the technology sector during the week after the stock fell to a new 52 week low after UBS said that Cisco faces challenges due to slowing sales in the U.S. and Europe.
Among interesting corporate news, Microsoft is reported to be willing to enter discussions with Yahoo! if Yahoo replaces its board of directors. Next, General Electric's NBC Universal is joining Blackstone Group and Bain Capital to purchase The Weather Channel for $3.5 billion. Also, Merrill Lynch might be planning to sell its stakes in holdings like Bloomberg and BlackRock soon which would generate cash to help offset potential write-downs and adjustments.
In the M&A arena, Dow Chemical announced its intent to acquire Rohm & Haas for $78 per share in cash. That price marked a 74% premium for ROH shareholders based on the stock's closing price the day before the deal was announced.
Executive Summary
For the week, indices registered modest losses. In percentage terms, Dow and Nasdaq lost 1.7% and 0.3% respectively. S&P 500 lost 1.9%. It was the battered financial sector and the rising crude price that played the pranks with the market. Government sponsored Freddie Mac and Fannie Mae were reported to be in distressed condition and this worried the investors. On Friday, 11 July, the Dow sank below the 11,000 level during intra day trading for the first time in two years.
For the year, Dow, Nasdaq and S&P 500 are down by 16.3%, 15.6% and 15.6% respectively.
The coming week as a host of important reports both on economic and earnings front. The earnings reporting will kick up several notches with reports from a number of major financial and technology companies. The minutes from the 25 June Federal Open Market Committee (FOMC) meeting will be released and Fed Chairman Bernanke is slated to present his semi-annual testimony before Senate and House committees. Also, on the dock are key inflation reports in the form of the PPI and CPI Indexes, as well as the latest data on retail sales, housing starts and industrial production.
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