Bank Rally Helps Stocks Snap Losing Streak
Stocks finished the day mixed, as Microsoft and Google dragged on techs, but gained 3.6 percent for the week, helped by a rally in bank stocks and a sharp drop in oil prices.
The Dow Jones Industrial Average and S&P 500 index eked out modest gains, managing to avoid spending a third straight weekend in bear territory. The Dow clocked its best week in three months. The tech-heavy Nasdaq wasn't as lucky, ending about five points below the bear mark.
Still, all three indexes snapped multiweek losing streaks. For the S&P and Nasdaq it was six weeks; for the Dow, it was four.
Volume was massive this week, with Tuesday and Thursday registering as the second and third largest NYSE volume days on record, with more than 7 billion shares changing hands eacy day. Average daily volume is 4.38 billion.
Financials waffled throughout the day, but logged a solid week, with Citigroup capping off a string of bank earnings including Wells Fargo and JPMorgan . All three of those stocks gained more than 20 percent this week; Lehman Brothers rocketed more than 30 percent. Also giving the sector a boost was an SEC rule to help curb short-selling on financials.
It was an odd inversion of the market this week: financials led the S&P sector indexes with a 12-percent gain, while energy came in last place with a 5-percent decline.
That was largely due to a sharp drop in oil prices, which snapped three straight weeks of gains. Light, sweet crude finished the week at $128.88 a barrel , down more than $16, or 11%, from last Friday's close of $145.08 a barrel. That day, oil hit an intraday high of $147.27 a barrel.
There has never been a sharper weekly drop in dollar terms; in percentage terms, it was the commodity's biggest decline since December 2004.
Chevron was the biggest drag on the Dow and ExxonMobil was the largest decliner on the S&P 500. Over on the Nasdaq, Google had the most negative impact.
Adding to the oddity of it all, General Motors was the Dow's top gainer, advancing 33 percent.
Some market pros said this is a perfect time to get into the market.
"We have seen the most incredible, overwhelming amount of negative everything – it’s the end of the world," Bill Spiropoulos, CEO of CoreStates Capital Advisors, told CNBC. "This is the time for advisors and client alike to have ice in your veins, clear thought, high testosterone and put money to work now."
With nearly one-fifth of S&P 500 companies reporting, analysts expect second-quarter earnings for the 500 to drop 17.1 percent, Thomson Reuters reports, down from its prior estimate of 16.1 percent.
Next week will bring another onslaught of earnings but traders said the one to watch is Wachovia Bank , which may not be so pleasant, on Tuesday.
And, techies will be looking to Apple to see if the iPod master can get the sector back on a winning track.
There will also be reports from Bank of America and WaMu as far as the banks go, and Yahoo and Amazon in the tech sector. A handful of pharmas report, including Merck, Pfizer, Eli Lilly and Bristol-Myers. Earnings from McDonald's and Pepsi will offer further insight on consumers, and a report from UPS will take the temperature of the economy.
The end of the week will bring more insight on the troubled housing sector, with back-to-back reports on existing-home sales and new-home sales.
In Friday's market action:
Citigroup reported a smaller-than-expected $2.5 billion lossfor the second quarter, prompting at least one analyst to say "the worst may be over in the subprime mess." Its shares rose 7.7 percent.
Google and Microsoft were the biggest drag on major indexes Friday after the companies' outlooks punctured the notion that these pillars of tech were immuneto the economic slump.
Google lost 9.8 percent, its biggest one-day percentage decline since it went public in 2004. Microsoft fell 6 percent, its biggest drop in two years.
(Has the U.S. recession finally reached Silicon Valley? Click on the video at left.)
There was some encouraging news from the tech sector: IBMbeat earnings expectations as strong demand overseas for its software and services juiced revenue and Nokia , the world's biggest handset maker, offered an optimistic outlookfor the rest of the year.
Merrill Lynch , which has been among the hardest hit by the credit crunch, reported a $4.9 billion loss -- more than double what analysts had expected and one of the worst in the investment bank's history. Merrill also said it is close to selling $8 billion of assets in a bid to raise fresh capital. Earlier this week, the company announced plans to sell its stake in Bloomberg Financial for $4.43 billion.
Meanwhile, Freddie Mac was rumored to be readying to sell as much as $10 billion in new shares, having taken the first step by registering with the SEC.
Freddie Mac and Fannie Mae have enjoyed a wild rally this week, which, if it holds, would snap an eight-week losing streak. The government on Sunday launched a rescue plan of the pair, assuring investors they would buy back stock if necessary and promising to raise the limit on government guarantees on their debt.
Together, Fannie and Freddie finance about half of U.S. homes, making their stability essential to stabilizing the housing market.
As consumers get pummeled by housing crisis and soaring prices at the pump, a survey by Reuters and the University of Michigan offered a striking revelation: More than half of consumers polled said they plan to accelerate paying off their debtand save more in the year ahead.
The numbers are backing that up: A government gauge of aggregate savings jumped to 5 percent in May, the biggest since March 1995, and the Fed's measure of household indebtedness versus income dropped to 14.13 in the first quarter, the lowest in two years.
It's a solid sign that individuals are getting their house in order but with consumers accounting for two-thirds of economic activity, it means a deepening slump for the economy in the second half of the year and in early 2009.
Honeywell's second quarter profit rose 18 percent and the company, which makes everything from air purifiers to cockpit electronics, raised its forecast, citing strong demand for aircraft electronics and environment and security-control systems used in large buildings.
Yahooshares slipped after Legg Mason, the Internet portal's second largest institutional shareholder, said it will back Yahoo's board, clashing with Carl Icahn and his plan to oust the board and elect a rival slate.
"We believe the current board acted with care and diligence when evaluating Microsoft's offers," Legg Mason said in a statement. The firm's portfolio manager Bill Miller said Icahn would have more support if he promised not to sell Yahoo below $33 a share, and urged Microsoftto make its offer public. "If Yahoo shareholders support it, I am confident the board of Yahoo will accept it," Miller said.
American depositary shares of Teva Pharmaceuticals jumped on news that the Israeli company has agree to buy rival generic drug makerBarr Pharmaceuticals in a deal valued at $7.46 billion.
On Tap for Next Week:
MONDAY: Earnings from Bank of America, Merck and Apple
TUESDAY: Earnings from Caterpillar, UPS, Wachovia, Lockheed Martin, SunTrust Bank, UAL, UnitedHealth, Yahoo and WaMu
WEDNESDAY: Weekly mortgage applications; weekly oil inventories; Earnings from AT&T, Boeing, ConocoPhillips, Pfizer, Philip Morris, Anheuser-Busch, Amazon and Pulte Home
THURSDAY: Weekly jobless claims; existing-home sales; earnings from Eli Lilly, MMM, Bristol-Myers, Dow Chemical and Xerox
FRIDAY:Durable-goods orders; consumer sentiment; new-home sales; earnings from Netflix
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