For the week ending Friday, July 18, 2008, the U.S. markets saw extreme volatility yet settled higher on better-than-expected earnings results, a pullback in crude oil, and an indication that the Fed will hold interest rates steady. The CBOE Volatility Index (VIX) surpassed the 30 mark on 7/15 during intraday trading, its highest level since late March. Nonetheless, the Dow had its best week since April 18 and biggest 3-day percent gain since March 2003, even after closing below 11,000 for the first time since July 2006. It pared its losses on Wednesday by closing up 276.7 points, its largest gain since 4/1. Financials rallied over 20% from their lows while oil fell over 11% for the week from its high.
Next week: The markets will be watching for a heavy concentration of earning reports giants such as: Bank of America, Schering Plough, Merck, Apple, Texas Instruments, DuPont, Wachovia, Yahoo, Pfizer, GlaxoSmithKline, AT&T, McDonald’s, Wyeth, Amazon, and Philip Morris. It will be a relatively quiet week for economic data, with data on Durable Goods Orders, Consumer Sentiment, Existing and New Home Sales.
M&A, Deals, Corp Actions:
Barr Pharmaceuticals and Israel’s generic-drug maker Teva Pharmaceuticals gained 45.48% and 2.61%, respectively for the week on Teva's $7.46 billionacquisition. The deal would create greater distribution channels for both firms, with Teva strengthening its position in the U.S. markets.
Cleveland-Cliffs agreed to buy coal miner Alpha Natural Resources for $10 billion, as the company seeks further diversification in steelmaking. However, Cleveland’s large shareholder, Harbinger Capital, objected to the company’s proposed takeover deal. The consolidation of both firms would create one of the biggest U.S. mining companies. CLF’s shares reacted negatively to the acquisition, dropping 10.22% for the week.
Waste Management Inc announced a buyout bid on Monday of rival firm Republic Services for $6.3 billion in an effort to dampen Republic’s own prior acquisition offer of number 2 waste management firm Allied Waste . Consequently, Republic Services rejected Waste Management’s takeover bid, deeming Allied Waste as a more favorable acquisition, initially valued at $6.24 billion. Republic’s shares surged 16.31% for the week, while Waste Management’s bittersweet proposal led its stock to a 3% decline.
Other Market Moving News:
- American Airlines publicized that it will lay off 1,300 mechanics as well as 200 additional workers. Airlines such as American have been restructuring and trying new ways to offset growing fuel costs, from charging for additional check-in bags to flying with less fuel.
**American Airlines also reported a robust 2Q net loss of $5.77/share, while Delta’s (DAL) earnings came in slightly better at a 2Q net loss of $2.64/share.
***A brighter week for airlines as major airlines such as UAL Corp, American Airlines, Delta, and Northwest shares rallied 50.14%, 50.11%, 40.57%, & 40.79% amidst a fall in crude prices.
- General Motors announced a plan to raise $15 billion by cutting worker costs, lowering capital spending, and through future asset sales. GM traded up 32.86% for the week.
- Banks such as Washington Mutual , National City , First Horizon National Zions Bancorp faced heavy sell-offs on Monday after the Federal Deposit Insurance Corp. (FDIC) seized the California savings bank, IndyMac Bancorp (IMB), marking the fifth bank to fail as a result of the U.S. subprime mortgage crisis. Shares of all, WM, NCC, FHN, ZION plummeted 34.7%, 14.71%, 24.78%, 23.2%, respectively Monday led by bank failure speculations and risky mortgage-loans exposure & downgrades.
Crude Oil for August delivery settled lower at $128.88/barrel on Friday, while it dropped for the fourth consecutive day, and sagged by $16.2 or 11.17% for the week. Crude’s losses were led by OPEC’s lower forecast in world oil-demand for 2008-2009, a rise in weekly crude stocks by ~3 million barrels, despite a sharp decline in the dollar, as the greenback hit a new record low against the euro at $1.6036 on 7/15.
*OPEC’s reported a drop in world oil-demand for 2008 to 1.03 million barrels/day or a 70,000 barrels decline from a previous estimate.
**The national average of gasoline prices remained at a new record of $4.114/gallon reached on 7/17, as per AAA.
**Diesel fuel sets its own record at $4.845/gallon as of 7/17, per AAA’s fuel gauge report.
Natural Gas for August delivery tumbled on Thursday, settling at $10.537/million BTU’s, the lowest level since 4/17 and down 11.21% for the week. Natural gas dipped after the government‘s weekly data showed higher than expected U.S. inventories.
**EIA reportedthat the level of natural gas in storage increased 104 Bcf, while analysts expected supplies to grow by 91 Bcf.
Gold for August delivery neared its record close of $1004.3/ounce reached on 3/18, after hitting an intraday high of $989.6/ounce on Tuesday, but managed to close almost flat -0.27% for the week on a commodity market cooling.
Cocoa for September delivery settled $131 lower at $2795/metric ton on Friday, after reaching a market peak of $3290/ton on 7/1/08, and is off 4.02% for the week, as bearish economic outlook curbs demand for this soft commodity.
**However, cocoa futures have risen more than 37% year to date on tight supplies and crop concerns from main exporters-Ivory Coast and Indonesia.
Currencies: The US dollar was firm across the board on Friday, helped by a smaller-than-expected loss in earnings from Citigroup, the largest US bank, as well as positive earnings earlier in the week from Wells Fargo and JPMorgan. The dollar also benefited from a $16 drop in crude oil prices this week, following last week's record high.
Friday afternoon, the dollar index was at 72.19, up 0.12% for the week.
The euro hit an all-time high of $1.6036 versus the greenback on Tuesday ahead of Fed Chairman Bernanke semiannual monetary policy testimony. Chairman Bernanke reiterated that inflation is too high and that the Feds aim is to achieve price stability. On Friday, the euro traded at $1.5844 per euro, from $1.5861 late Thursday.
The US dollar appreciated 0.55% against the Japanese yen, trading at 106.78 yen per dollar on Friday, from 104.77 yen late Thursday. The yen has lost momentum versus the greenback as comments from the Bank of Japan suggest a greater emphasis on economic growth, which could limit efforts to offset inflation.
The pound sterling crossed the $2 mark on Tuesday, hitting an intraday high of $2.1049, or its highest level since March 27. The pound sterling traded at $1.9976 on Friday, from $2.0036 late Thursday. The sterling pound fell on Friday on speculative comments that the Bank of England was planning to modify its fiscal rules, possibly expanding borrowing measures.
Against the Swiss franc, the US dollar traded at 1.0219 francs, from 1.0192 francs late Thursday.
- The Dow ended up 396.03 or 3.57% for the week
- The Dow closed at 11,496.57, up 49.91 or 0.44%
- The Dow is Negative YTD down -13.33%
- The Dow is off by -2,667.96 or -18.84% from the market peak on October 9th of 14,164.53
- The NASDAQ ended up 43.70 or 1.95% for the week
- The NASDAQ Composite closed at 2,282.78, down -29.52 or -1.28%
- The NASDAQ is Negative YTD down -13.93%
- The NASDAQ is off by -576.34 or -20.16% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended up 21.19 or 1.71% for the week
- Friday the S&P 500 closed at 1,260.68, up 0.36 or 0.03%
- The S&P is Negative YTD down -14.14%
- The S&P is off by -304.47 or -19.45% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, July 18, 2008:
S&P 500 Financials Sector (.GSPF) Up 28.80 or 11.44%
S&P 500 Consumer Discretionary Sector (.GSPD) Up 13.79 or 6.53%
S&P 500 Industrials Sector (.GSPI) Up 6.89 or 2.32%
S&P 500 Health Care Sector (.GSPHC) Up 7.50 or 2.08%
S&P 500 Information Technology Sector (.GSPT) Up 4.19 or 1.21%
S&P 500 Consumer Staples Sector (.GSPS) Down -0.21 or -0.08%
S&P 500 Telecomm Services Sector (.GSPTS) Down -0.23 or -0.17%
S&P 500 Materials Sector (.GSPM) Down -1.95 or -0.79%
S&P 500 Utilities Sector (.GSPU) Down -9.03 or -4.39%
S&P 500 Energy Sector (.GSPE) Down -33.69 or -5.55%
S&P Top 10 Performers for the week ending Friday, July 18, 2008:
Barr Pharmaceuticals Inc (BRL) Up 19.83 or 45.48%
MGIC Investment Corp (MTG) Up 1.79 or 43.13%
MBIA Inc (MBI) Up 1.52 or 38.97%
ETrade Financial Corp (ETFC) Up 0.94 or 34.56%
General Motors Corp (GM) Up 3.26 or 32.86%
Lehman Brothers Holdings Inc (LEH) Up 4.68 or 32.43%
Fannie Mae (FNM) Up 3.15 or 30.73%
Pulte Homes (PHM) Up 2.52 or 28.44%
Bank Of America Corp (BAC) Up 5.82 or 26.86%
First Horizon National Corp (FHN) Up 1.77 or 26.42%
S&P 10 Worst Performers for the week ending Friday, July 18, 2008:
Fluor Corp (FLR) Down -90.49 or -51.79%
Massey Energy Co (MEE) Down -16.10 or -19.37%
CONSOL Energy Inc (CNX) Down -18.41 or -18.35%
Peabody Energy Corp (BTU) Down -12.75 or -16.59%
Chesapeake Energy Corp (CHK) Down -9.19 or -14.47%
eBay Inc (EBAY) Down -4.03 or -14.39%
Cabot Oil & Gas Corp (COG) Down -8.58 or -14.25%
AK Steel Holding Corp (AKS) Down -7.65 or -13.97%
United States Steel Corporation (X) Down -21.07 or -12.88%
Hess Corp (HES) Down -13.91 or -12.45%
Dow Top Performers for the week ending Friday, July 18, 2008:
General Motors Corp (GM) Up 3.26 or 32.86%
Bank Of America Corp (BAC) Up 5.82 or 26.86%
JPMorgan Chase and Co (JPM) Up 6.86 or 20.69%
Citigroup Inc (C) Up 3.16 or 19.52%
American International Group Inc (AIG) Up 1.99 or 8.62%
Home Depot Inc (HD) Up 1.86 or 8.62%
The Boeing Co (BA) Up 4.86 or 7.68%
American Express Co (AXP) Up 2.98 or 7.60%
Intel Corp (INTC) Up 1.45 or 7.03%
E I du Pont de Nemours and Co (DD) Up 2.73 or 6.58%
Dow Worst Performers for the week ending Friday, July 18, 2008:
Chevron Corp (CVX) Down -6.20 or -6.72%
Exxon Mobil Corp (XOM) Down -3.94 or -4.61%
ALCOA Inc (AA) Down -0.83 or -2.40%
AT&T Inc (T) Down -0.46 or -1.41%
The Coca Cola Co (KO) Down -0.24 or -0.48%
3M Company (MMM) Up 0.22 or 0.32%
Procter & Gamble Co (PG) Up 0.22 or 0.35%
General Electric Co (GE) Up 0.34 or 1.23%
Verizon Communications (VZ) Up 0.53 or 1.52%
Caterpillar Inc (CAT) Up 1.08 or 1.55%
Key Earnings next week:
Monday: Bank of America (BAC), Merck (MRK), Schering-Plough (SGP), Apple (AAPL)
Tuesday: Caterpillar (CAT), DuPont (DD), Wachovia (WB), Yahoo (YHOO), United Parcel (UPS)
Wednesday: AT&T (T), McDonald’s, Pfizer (PFE), Wyeth (WYE), Anheuser-Busch (BUD)
Thursday: Eli Lilly (LLY), 3M (MMM), Dow Chemical (DOW), Diamond Offshore (DO)
Friday: Arch Coal (ACI), Fortune Brands (FO), Black & Decker (BDK), Netflix (NFLX)
Economic Data next week:
Tuesday: ICSB-UBS Store Sales (weekly), State Street Investor Confidence Index
Wednesday: Crude Inventories (weekly), MBA Purchase Applications
Thursday: Jobless Claims (weekly), Existing Home Sales
Friday: Durable Goods Orders, Consumer Sentiment, New Home Sales