Market 360: The Best and Worst of the Week for US Equities, Commodities, Currencies, and More
For the week ending Friday, August 8, 2008, the U.S. markets ended the week on a positive note, cheered by a retreat in commodity prices, a Fed’s decision to keep rates steady at 2%, better-than-expected results in pending home sales, and a stronger dollar. The ECB also kept its key rate unchanged at 4.25%, as concerns over the health of the euro zone economy increase. The NASDAQ led the major indices, up 4.46% for the week, its best week since 4/18. In addition to today's 300 point gain, the Dow managed a 331 point run on Tuesday, marking its biggest point gain since April 1. Offsetting the rally, disappointing retailer sales and new capitalization uncertainties from Fannie Mae (FNM) & Freddie Mac (FRE) weighed on U.S. stocks in the middle of the week.
Next Week's Highlights: The markets will closely follow economic news on International Trade, the Consumer Price Index (CPI), and Industrial Production. The next batch of earnings will come mostly from retailers Wal-Mart, Macy's, JC Penney, and Home Depot. Hewlett-Packard will also report.
M&A, Deals, Corp Actions:
Privately held insurer Nationwide Mutual reached a $2.4 billion acquisition agreement with Nationwide Financial Services for a total ownership of the firm. The merger will allow both companies to extend their product offerings and financial portfolios to new and existing customers. Shares of NFS rose 9.3% for the week on deal news.
Delta and Northwest received merger clearance on Wednesday from the European Commission, but the airlines need to seek further consent from the U.S Department of Justice. The deal will create the nation’s largest passenger airline carrier with more than $1 billion in annual revenue. Shares of Delta and Northwest rallied 18.4% and 20.3%, respectively for the week, on lower oil prices and as both companies move one step closer to merger completion.
TowerGroup announced that it will acquire insurance rival CastlePointHoldings for $490 million, in a deal that will offer both companies enhanced financial opportunities, and lower expenses. The combined synergies will create a combined gross premium of approximately $1.2 billion. Merger news had a positive impact on CHPL’s shares, as they finished up 21.96% for the week.
U.S Peoplesupport Inc. agreed to a buy-out offer from Indian privately-held firm Aegis BPO, for $250 million in a move that would allow the foreign company to expand its business operations into new business segments and territories. Shares of PSPT jumped ~25% on Monday on deal news.
China Mass Media International a television advertisement company in China debuted on the NYSE at an initial public offering of $6.80/share, but declined 14.71% thereafter from its opening price. China Mass Media which is based in Beijing will be assisting China Central Television in the sales and marketing of ad slots during the 2008 Summer Olympics, which began today on Friday-8/08/08 (be sure to watch all the action on our parent NBC).
*China Mass Media is the third Chinese stock this year to make an entrance in the U.S. stock market, followed by China Distance Education , and ATA Inc , with DL trading 8.7% below its $7 IPO price, and ATAI successfully up 47% from its $9.5 initial price.
Other Market Moving News:
A mixed week for financial stocks, as bond insurer Ambac Financial surprisingly reported strong 2Q results on gains from fixed-income securities, leading to a 101.4% increase in its stock for the week.
*Mortgage-giant Freddie Mac swung to wider-than-expected 2Q losses, while the company also expects to cut its 3Q dividend by 80%. Freddie also stated that it may fail to meet the 20% mandatory capital requirements imposed by OFHEO’s (Office of Federal Housing Enterprise Oversight). Shares of Freddie fell 17% for the week.
**Furthermore, Fannie Mae shares tumbled 23.43% for the week after the company also reported a 2Q net loss due to defaulting mortgages and continued housing market deterioration. The firm also slashed its dividends by 86% as a measurement to conserve capital.
***A reduction of investors’ confidence for these two Government-Sponsored Enterprises (GSE) pressed Congress to pass a $300 billion rescue program to aid troubled homeowners last month.
Retailers reported disappointing July sales, with 61% of the 39 companies reporting posted results below expectations. Discounters such as BJ’s Wholesale and Costco were amongst the biggest winners, topping July sales estimates, as each reported a growth of 16.7% & 10% respectively, compared with forecasts of 12.9% for BJ’s & 7.8% for Costco. Wal-mart reported a 3% growth, falling short of its expected 3.4% growth.
*Teenage apparel Buckle saw the biggest growth of 20.9%, but slightly missed estimates as its shares shed 4.46% for the week.