For the week ending Friday, August 22, 2008, the U.S. major Indices fell for the week on the unknown future of mortgage giants Freddie Mac and Fannie Mae, downbeat home construction July data, and soaring producer prices. The NASDAQ Composite performed the worst for the week, declining 1.54%, its steepest decline since Independence Day week. However, Friday was a positive day for the markets helped by a welcome speech by Federal Reserve Chairman Ben Bernanke and a pull back in the price of crude. The Dow had three days of triple-digit point gains & losses, netting to finish almost flat for the week.
Next Week's Highlights: Next week there will be lots of economic news that could impact the markets including Consumer Confidence and FOMC Minutes on Tuesday, Durable Goods on Wednesday, preliminary GDP on Thursday, and Personal Income & Spending on Friday. It will be a quiet week for earnings, with only a few companies reporting, including Dell, Sears, Dollar Tree, and Novell.
M&A, Deals, Corp Actions:
Chicago based insurance broker Aon Corp agreed to buy Britain’s reinsurance firm Benfield Group Ltd for an estimated $1.6 billion in a deal that will allow AON to expand its business operations abroad. Shares of AON edged up 1.1% for the week on merger news.
Ericsson and STMicroelectronics are creating a joint venture in order to pool their wireless chip-making business and gain competitive advantage over U.S rivals Qualcomm and Texas Instruments . The Swedish mobile maker-Ericsson will inject $1.1 billion into the venture, and will operate with 8,000 employees out of Geneva. American Depository Receipts (ADR) of Ericsson slightly finished up 2.14% for the week, while ADR’s of STM dropped ~0.5%
ArcelorMittal the world’s largest steel company announced it will acquire full ownership of iron ore miner-London Mining South America Ltd for approximately $810 million. The deal will give ArcelorMittal more control over raw material supplies and enable greater diversification in commodities. ADR’s of ArcelorMittal leapt 2.5% for the week on the acquisition news.
The American Defense & Aerospace Contractor, General Dynamics announced a $2.25 billion deal to acquire the Swiss air- service company Jet Aviation. The merger will offer General Dynamics global market opportunities since Jet Aviation currently operates in Europe, Middle East, Asia, as well as North America. Shares of General Dynamic finished down 1.5% for the week.
Other Market Moving News:
Financials took another beating, as the S&P 500 Financial Index dropped over 3% for its biggest weekly percentage decline since 7/11/08, and a second consecutive week of heavy losses.
**Government-Sponsored Agencies, Freddie Mac and Fannie Mae , led the losers’ pack, with Freddie Mac’s stock shedding more than half its value for the week, down ~52% to $2.81, and Fannie Mae sinking ~37% to $5. Fannie Mae’s stock reached an intraday low of $3.53 on 8/21, its lowest level since 6/30/1988, and Freddie Mac’s shares fell for the first time to an all-time intraday low of $2.26 on 8/21. The latest plunge in the companies’ stock prices came from investor fears that the two mortgage giants would need to recapitalize sooner rather than later, after a report came out on their inability to pay $223 billion in bonds by the end of the quarter.
**Lehman Brothers’ stock withered 10.9% for the week but rebounded 5% on Friday on takeover news from foreign investor Korea Development Bank and additional news that it’s seeking the sale of its asset-management division, including the Neuberger Berman unit to offset some of its losses related to the firm’s exposure in mortgage-related securities. Lehman shares flirted around its 52-week low of $12.02, reached on 7/15/08, as the stock touched an intraday low of $12.5 on 8/20 and is currently down almost 78% year to date.
Crude Oil for October delivery finishing up 0.57% for the week after high volatility in crude allowed it to gain as much as $5.62 on Thursday and then fall $6.59 on Friday to close at $114.59/barrel. Friday’s appreciation in the dollar outweighed crude's early resurgence from continued geopolitical tension between the U.S, Russia, and the Republic of Georgia.
Corn for December delivery surged 10.37% for the week while reaching an intraday high of $6.25/bushel on Thursday, its highest peak since 7/18/08. A rise in corn was supported in part by a jump in crude futures, as a significant amount of the corn crops are used to make ethanol, an alternative to gasoline. Dry weather conditions in the Midwest also supported higher prices in corn, pushing corn up33% year to date.
**Per a Pro Farmer report on Friday, the corn crop for 2008-09 is estimated at 12.152 billion bushels, or projected to yield 153.3 bushels per acre. In contrast, the U.S Department of Agriculture had reported last Tuesday 8/12 corn production for this year to total at 12.288 billion bushels, with an average yield of 155 bushels per acre.
Rough Rice for November delivery soared 11.01% for the week, after hitting an intraday high of $18.33/hundredweight on Thursday, its highest peak since 7/11 on technical grain-buying rally.
Soybeans for November delivery was another grain winner for the week up 8.86% touching an intraday high $13.7/bushel, but still off -18.9% from its record peak of $16.355/bushel reached on 7/03/08.
**After scouting the Midwest crop region, the Pro Farmer reported U.S soybean production for 2008-09 at an estimated 2.93 billion bushels, or an average yield of 39.95 bushels per acre.
Currencies: The dollar strengthened against its major rivals on Friday, following remarks from Fed Chairman Bernanke emphasizing that a stable dollar and a decline in commodity prices should help ease inflation for the reminder of the year and into 2009. Mr. Bernanke's comments also led investors to speculate that the Federal Reserve might keep interest rates low in the coming months. A $3 drop in crude oil prices and a bleak outlook for the United Kingdom also helped to lift the greenback.
- The dollar index hit an intraday high of 76.77 on Friday, up 0.60% for the day.
- The pound sterling fell to its lowest level in nearly two years, after a revised GDP reading in the United Kingdom showed a dismal growth of 0.2% during the second quarter. The UK's economy had its worst quarterly performance since 1992, which increased investors' concerns over a possible recession. The pound sterling hit an intraday low of $1.8508 per pound Friday. During midday trading the pound was at $1.8549, from $1.8779 late Thursday, down 3.4% for the week.
- Concerns over the health of the major European economies led investors to speculate the that ECB along with the Bank of England might be forced to ease their monetary policies. The euro fell to its lowest level in over 6 months this week, hitting an intraday low of $1.4632 per euro on Tuesday. On Friday, the euro traded at $1.4812, from 1.4896 late Thursday.
- The dollar rose over 1% versus the Japanese yen Friday to 109.89 yen per dollar. The dollar has appreciated over 4% against the yen in the past 3 months, and is trading near its highest level since early January of this year.
- Highlights: New Zealand
Against the New Zealand dollar, the greenback has appreciated 10.21% in the past three months, trading at $0.7101per kiwi on Friday, from $0.7205 late Thursday. The Reserve Bank of New Zealand cut its key interest rate by a quarter of a point to 8% on June 5th, 2008, while inflation for June remained at 4%.
- The Dow ended down -31.84 or -0.27% for the week
- Friday, the Dow closed at 11,628.06, up 197.85 or 1.73%
- The Dow is Negative YTD down -12.34%
- The Dow is off by -2,536.47 or -17.91% from the market peak on October 9th of 14,164.53
- The NASDAQ ended down -37.81 or -1.54% for the week
- Friday, the NASDAQ Composite closed at 2,414.71, up 34.33 or 1.44%
- The NASDAQ is Negative YTD down -8.96%
- The NASDAQ is off by -444.41 or -15.54% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended down -6.00 or -0.46% for the week
- Friday the S&P 500 closed at 1,292.20, up 14.48 or 1.13%
- The S&P is Negative YTD down -12.00%
- The S&P is off by -272.95 or -17.44% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, August 22, 2008:
S&P 500 Energy Sector (.GSPE) Up 27.55 or 5.18%
S&P 500 Utilities Sector (.GSPU) Up 4.00 or 2.14%
S&P 500 Materials Sector (.GSPM) Up 3.26 or 1.35%
S&P 500 Telecomm Services Sector (.GSPTS) Down -1.31 or -0.99%
S&P 500 Consumer Staples Sector (.GSPS) Down -3.17 or -1.06%
S&P 500 Health Care Sector (.GSPHC) Down -4.29 or -1.10%
S&P 500 Information Technology Sector (.GSPT) Down -4.23 or -1.13%
S&P 500 Industrials Sector (.GSPI) Down -4.31 or -1.35%
S&P 500 Consumer Discretionary Sector (.GSPD) Down -4.70 or -1.91%
S&P 500 Financials Sector (.GSPF) Down -8.69 or -3.04%
S&P Top 10 Performers for the week ending Friday, August 22, 2008:
CONSOL Energy Inc (CNX) Up 8.09 or 13.18%
Peabody Energy Corp (BTU) Up 7.43 or 13.02%
Limited Brands Inc (LTD ) Up 2.17 or 11.60%
Hess Corp (HES) Up 10.95 or 11.49%
National Oilwell Varco Inc (NOV) Up 7.54 or 11.01%
Massey Energy Co. (MEE) Up 6.56 or 10.86%
Fluor Corp (FLR) Up 7.44 or 10.43%
Titanium Metals Corp (TIE) Up 1.06 or 9.52%
Devon Energy Corp (DVN) Up 8.33 or 8.87%
EOG Resources Inc (EOG) Up 8.04 or 8.41%
S&P 10 Worst Performers for the week ending Friday, August 22, 2008:
Freddie Mac (FRE) Down -3.04 or -51.97%
Fannie Mae (FNM) Down -2.91 or -36.79%
Sovereign Bancorp Inc (SOV) Down -1.99 or -18.99%
MGIC Investment Corp (MTG) Down -1.60 or -18.67%
Washington Mutual Inc (WM) Down -0.72 or -15.82%
SanDisk Corp (SNDK) Down -2.62 or -14.85%
Gannett Co Inc (GCI) Down -2.98 or -14.43%
American International Group Inc (AIG) Down -3.12 or -13.57%
Micron Technology Inc (MU) Down -0.70 or -12.99%
Ford Motor Co (F) Down -0.64 or -12.52%
Dow Top Performers for the week ending Friday, August 22, 2008:
Chevron Corp (CVX) Up 3.85 or 4.57%
Exxon Mobil Corp (XOM ) Up 3.23 or 4.19%
Hewlett-Packard Co (HPQ) Up 1.47 or 3.22%
The Boeing Co (BA) Up 1.10 or 1.71%
ALCOA Inc (AA) Up 0.47 or 1.48%
Verizon Communications (VZ) Up 0.33 or 0.94%
Johnson and Johnson (JNJ) Up 0.09 or 0.13%
Wal-Mart Stores Inc (WMT) Up 0.07 or 0.12%
Microsoft Corp (MSFT) Up 0.03 or 0.11%
Procter & Gamble Co (PG) Up 0.01 or 0.01%
Dow Worst Performers for the week ending Friday, August 22, 2008:
American International Group Inc (AIG) Down -3.12 or -13.57%
General Motors Corp (GM) Down -0.74 or -6.62%
Intel Corp (INTC) Down -0.77 or -3.17%
Merck & Co Inc (MRK) Down -0.89 or -2.46%
General Electric Co (GE) Down -0.68 or -2.28%
Citigroup Inc (C) Down -0.41 or -2.21%
E I du Pont de Nemours and Co (DD) Down -0.91 or -1.99%
3M Company (MMM) Down -1.21 or -1.65%
Bank Of America Corp (BAC) Down -0.49 or -1.60%
AT&T Inc (T) Down -0.49 or -1.55%
Key Earnings next week:
Tuesday: Smithfield Foods, Big Lots, Bank of Montreal
Wednesday: American Eagle, Dollar Tree
Thursday: Dell, Sears, Royal Bank of Canada, Novell, Tiffany, Marvell Technologies, PetSmart
Economic Data next week:
Monday: Existing Home Sales
Tuesday: Consumer Confidence, New Home Sales,
Wednesday: Durable Orders, Crude Inventories
Thursday: Gross Domestic Product, Jobless Claims
Friday: Personal Income, Personal Spending, Consumer Sentiment (Mich)