For the week ending Friday, September 5, 2008, the U.S. markets ended in negative territory for the week after weak employment data and declines in auto and retail sales pointed to weaker consumer spending and a greater economic slowdown. The unemployment rate jumped to a 5-year high, soaring to 6.1%. On Thursday, the three major Indices fell back into bear market territory by dropping 20% from their market peaks set last fall. Both the Dow & Nasdaq Composite had their worst daily closes since July 26, with drops of more than 340 points for the Dow and 75 points for the Nasdaq. The Nasdaq is now on a 5-day losing streak.
Next Week's Highlights: Next week will be a relatively quiet week for earnings with just a few companies reporting including Campbell Soup, Lululemon Athletica, and Pep Boys. Economic data that the markets will focus on will include Pending Home Sales, Wholesale Trade, International Trade, the Producer Price Index (PPI), and Retail Sales. Tuesday watch for more possible crude oil swings as the Organization of Petroleum Exporting Countries (OPEC) may restrict output at its next member meeting in Vienna.
M&A, Deals, Corp Actions:
Samsung announced a possible buy-out of U.S. chipmaker Sandisk for an undisclosed acquisition offer. Analysts believe Samsung will purchase Sandisk for ~$3.2 billion. Shares of Sandisk rallied 22% for the week on merger news.
Altria revealed a merger plan to acquire chewing tobacco and wine manufacturer UST Inc in a deal valued at approximately $10 billion which will help Altria increase its overall presence in the tobacco industry. Shares of UST Inc surged 26% for the week and reached an all-time high of $67.84/share on Friday.
Coca Cola offered to buy Chinese beverage firm China Huiyuan Juice Group for $2.4billion or triple its stock price, marking the second largest acquisition for the world’s largest drink maker. The deal will broaden Coca Cola’s beverage portfolio abroad, and capture Huiyuan’s large market share, which currently represents 40% of the Chinese nectar & juice market. Coca Cola shares closed almost flat for the week, while Huiyuan’s stock more than tripled, to close at HK$4.14 on 9/3.
Japanese pharmaceuticals player, Shinogi & Co., announced it will purchase the smaller U.S. Atlanta-based cardiovascular drug maker Sciele Pharma Inc. for $1.42 billion in a deal that will help Shinogi gain additional distribution channels in the U.S pharmaceutical market. At a 61% premium of is previous closing price, shares of Sciele Pharma rallied 59.16% on Tuesday, after the acquisition news.
Chesapeake Energy agreed to a joint venture with the American unit of BP p.l.c . BP will take a $1.9 billion, or 25%, stake in CHK's Fayetteville Shale fields in Arkansas, thus concluding a second acreage deal with BP prior to its Oklahoma Arkoma Basin Woodford Shale asset deal in July. Shares of both, CHK and BP’s ADR took a downturn on falling crude prices, shedding 8% & 6% respectively for the week.
Other Market Moving News:
- Retail Chain sales slumped for the back-to-school shopping month of August. Discounters such as Wal-mart , BJ’s Wholesales , and Costco were amongst the few with gains of 3%, 15.4%, 9%, respectively for same store sales. Trendier discounter, Target, reported a same store sales decline of 2.1%, while luxury retailers’ sales such as Saks and Nordstrom also fell 5.9% and 7.9%. Some of the retailer shares with the sharpest decline for the week included BJ’s Whosales down 15%, Abercrombie & Fitch dropped 7% and Saks off 2%.
- Airline and automobile stocks took off for the week as crude slid to a 5-month low, hitting an intraday low of $105.13/barrel on 9/5. Shares of UAL Corp. , Northwest Airlines , Delta Corp , and General Motors surged 11%, 11%, 8%, and 7% respectively for the week on oil firms reporting minimal damages from Hurricane Gustav.
**August’s U.S. vehicle sales report offset some of the earlier gains from falling crude prices, as Ford posted a 26.5% drop in car sales from the prior year. Its SUV sales had the steepest decline, down by 53%. Ford cut its second-half production guidance by 50,000 cars. Ford stock’s fell ~1% for the week. General Motors’ August sales tumbled by 20.3%, despite consumer incentive programs, showing that US demand for vehicles continues to slump. Even one of the most popular fuel-efficient carmakers, Toyota ™, faced slow growth in U.S auto sales, with August sales falling by 9.4% from the previous year. American Depository Receipts (ADR) of Toyota failed to stay in the green, as it finished down 0.9% for the week.
Crude for October delivery fell for the sixth consecutive day settling down 8% for the week after refineries along the Gulf of Mexico reported minor damages to their production facilities. Oil fell to 5-month low, as it reached an intraday low of $105.13/barrel on 9/5, the lowest level since the beginning of April.
**Lower crude prices were also supported by statements made by Iran’s oil minister that OPEC may cut oil production at next Tuesday’s Vienna meeting due to slow global growth and weaken demand. Crude is also down 24.6% quarter to date.
**US oil consumption for the month of June hit 19.553 million barrels/day, the lowest level for that month since 1998, as per EIA.
Natural Gas for October delivery slipped to its worst levels for the year, trading as low as $7.023/million BTU’s on 9/4, its lowest intraday levels since 12/27/07 when it hit $6.838/ million BTU’s. Natural Gas took a tumble, down 6.22% for the week after EIA’s data revealed another large stock of natural gas of 90 Billion cubic feet (Bcf’s) for a total storage of 2.847 trillion Bcf’s. Natural Gas is also the worst energy performer quarter to date, as it’s down 45%.
Amidst a massive energy sell-off, Central Appalachian Coal for December delivery dropped the most for the week, down 10.6% as it settled at $101.25/ton on Thursday. However, this unclean form of energy is still the best performer year to date, as it is up 78%, but off 29% from its record peak of $143.38/ton in July.
**On Thursday, Goldman Sachs downgraded the steel industry, which is one of the biggest coal users stating that a stronger dollar and slower Chinese demand may dent steel prices. Coal stocks suffered major losses for the week with companies like Massey Energy (MEE) which is expecting production and pricing levels to drop by the end of third quarter shedding 18%, followed by Alpha Natural Resources (ANR), Arch Coal (ACI), Peabody Energy (BTU) all off more than 15% for the week.
Palladium for December delivery is the worst performer amongst the metals, losing 11.05% for the week as it hit an intraday low of $272/ounce on 9/5. This metal which is used in the auto industry for making catalytic converters is also down ~28% for the year.
Platinum for October delivery has also retreated for the week falling 8.19% as it settled at $1367.8/ounce on Friday, and nearly 41% off from its record high of $2308.8/ounce reached on 3/4 during intraday. This metal which is used in automobile parts is also down 8.2% for the year as falling auto sales may be dipping in the demand for platinum.
Copper for December delivery fell to a 7-month low as it reached an intraday low of $3.0875/pound on Friday, the lowest since 1/23. Copper closed down 8.5% for the week trading on demand worries and a significant jump in warehouse inventories in China where copper supplies increased by 8.4%.
Soybeans for November delivery fell to a 5-month low shedding 11.1% for the week, and dropping to an intraday low of $11.68/bushel, its lowest since 4/01. Forecasts for favorable weather conditions in the Midwest will allow for an average harvest year for this crop, causing a current sell off in this commodity which is also down 3.4% year to date.
Currencies: Friday, the U.S. dollar was modestly higher against most major currencies during midday trading in NY, as investors shrugged off a weaker-than-expected unemployment report. Falling crude oil prices, down 7.99% for the week, added to the greenback's bullish momentum.
- The dollar index was at 78.86 during midday Friday, up 2.11% for the week. The dollar index hit an intraday high of 79.08 on Thursday, its highest level in nearly 12 months.
- The ECB left interest rates unchanged at 4.25% during Thursday's meeting, as it was widely anticipated. ECB President, Jean-Claude Trichet, remarks during the meeting hinted at a continuing economic slowdown in the euro zone. The euro hit an intraday low of $1.4200 on Friday, its lowest level since October 2007. The euro recovered from earlier losses during the afternoon trading session to $1.4253, down 3.64% for the week.
- The pound sterling depreciated 4.78% for the week versus the greenback, heightened by views that the United Kingdom's economy is rapidly deteriorating. The Bank of England left interest rates unchanged at 5% on Thursday, as inflationary pressure persists. However, some investors expect the Bank of England to cut interest rates in order to stimulate the sluggish economy. The pound sterling traded at $1.7632 on Friday, its lowest level since March 2006.
- Highlights: Japanese yen
Against the yen, the greenback was down 2.63% for the week, trading at 107.13 yen per dollar on Friday. The yen has appreciated against the U.S. dollar as some investors avoid risk aversion in carry trades, which consist of borrowing from low-yield currencies to buy assets in higher-yielding currencies. The yen appreciated about 6.75% for the week against the New Zealand dollar, and 7.34% against the Australian dollar, trading at a two-year high versus both currencies.
- The Dow ended down -322.59 or -2.79% for the week
- Friday, the Dow closed at 11,220.96, up 32.73 or 0.29%
- The Dow is Negative YTD down -15.41%
- The Dow is off by -2,943.57 or -20.78% from the market peak on October 9th of 14,164.53
- The NASDAQ ended down -111.64 or -4.72% for the week
- Friday, the NASDAQ Composite closed at 2,255.88, down -3.16 or -0.14%
- The NASDAQ is Negative YTD down -14.95%
- The NASDAQ is off by -603.24 or -21.10% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended down -40.52 or -3.16% for the week
- Friday the S&P 500 closed at 1,242.31, up 5.48 or 0.44%
- The S&P is Negative YTD down -15.39%
- The S&P is off by -322.84 or -20.63% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, September 5, 2008:
S&P 500 Financials Sector (.GSPD) Up 4.37 or 1.53%
S&P 500 Consumer Staples Sector (.GSPE) Up 2.38 or 0.82%
S&P 500 Consumer Discretionary Sector (.GSPT) Down -1.83 or -0.76%
S&P 500 Telecomm Services Sector (.GSPTS) Down -3.50 or -2.66%
S&P 500 Health Care Sector (.GSPU) Down -10.71 or -2.83%
S&P 500 Industrials Sector (.GSPHC) Down -12.26 or -3.92%
S&P 500 Materials Sector (.GSPS) Down -14.28 or -5.89%
S&P 500 Utilities Sector (.GSPI) Down -11.26 or -5.92%
S&P 500 Information Technology Sector (.GSPF) Down -23.21 or -6.47%
S&P 500 Energy Sector (.GSPM) Down -41.19 or -7.41%
S&P Top 10 Performers for the week ending Friday, September 5, 2008:
UST Inc (UST) Up 13.96 or 26.05%
Zions Bancorporation (ZION) Up 6.13 or 22.84%
SanDisk Corp (SNDK) Up 3.18 or 21.99%
Regions Financial Corp (RF) Up 1.82 or 19.63%
Huntington Bancshares Inc (HBAN) Up 1.03 or 14.07%
Freddie Mac (FRE) Up 0.59 or 13.08%
IntercontinentalExchange Inc (ICE) Up 9.74 or 11.06%
Marshall & Ilsley Corp (MI) Up 1.68 or 10.91%
MGIC Investment Corp (MTG) Up 0.80 or 9.51%
Newell Rubbermaid Inc (NWL) Up 1.70 or 9.39%
S&P 10 Worst Performers for the week ending Friday, September 5, 2008:
Ciena Corp (CIEN) Down -4.74 or -27.27%
Terex Corp (TEX) Down -11.98 or -23.82%
AK Steel Holding Corp (AKS) Down -11.98 or -22.77%
Jabil Circuit Inc (JBL) Down -3.55 or -21.06%
Fluor Corp (FLR) Down -15.10 or -18.84%
Corning Inc (GLW) Down -3.85 or -18.74%
Massey Energy Co (MEE) Down -12.02 or -18.22%
MEMC Electronic Materials Inc (WFR) Down -8.90 or -18.13%
Freeport-McMoRan Copper & Gold Inc (FCX) Down -15.41 or -17.25%
National Oilwell Varco Inc (NOV) Down -11.87 or -16.10%
Dow Top Performers for the week ending Friday, September 5, 2008:
General Motors Corp (GM) Up 0.71 or 7.10%
Home Depot Inc (HD) Up 1.47 or 5.42%
American International Group Inc (AIG) Up 0.85 or 3.96%
Bank Of America Corp (BAC) Up 1.09 or 3.50%
JPMorgan Chase and Co (JPM) Up 1.11 or 2.88%
Wal-Mart Stores Inc (WMT) Up 1.67 or 2.83%
Procter & Gamble Co (PG) Up 1.01 or 1.45%
Citigroup Inc (C) Up 0.08 or 0.42%
Johnson and Johnson (JNJ) Up 0.24 or 0.34%
The Coca Cola Co (KO) Down -0.14 or -0.27%
Dow Worst Performers for the week ending Friday, September 5, 2008:
ALCOA Inc (AA) Down -3.83 or -11.92%
Intel Corp (INTC) Down -2.26 or -9.88%
Caterpillar Inc (CAT) Down -6.66 or -9.42%
Chevron Corp (CVX) Down -6.10 or -7.07%
International Business Machines Corp (IBM) Down -7.40 or -6.08%
Microsoft Corp (MSFT) Down -1.64 or -6.01%
Exxon Mobil Corp (XOM) Down -4.39 or -5.49%
Hewlett-Packard Co (HPQ) Down -1.96 or -4.18%
The Boeing Co (BA) Down -2.67 or -4.07%
Merck & Co Inc (MRK) Down -1.37 or -3.84%
Key Earnings next week:
Tuesday: Pep Boys (PBY)
Thursday: Campbell Soup (CPB), Lululemon Athletica (LULU)
Economic Data next week:
Monday: Consumer Credit
Tuesday: Pending Home Sales, Wholesale Trade
Wednesday: Crude Inventories (weekly)
Thursday: Trade Balance, Treasury Budget
Friday: Producer Price Index (PPI), Retail Sales, Business Inventories, Consumer Sentiment (Mich.)