Stocks Gain 1.8% for Week Despite Bank Rout
You know Wall Street, always on to the next thing before the last one is even finished.
There hasn't even been a deal on Lehman Brothers yet and already the Street is looking ahead to who's next, setting its crosshairs on AIG.
AIG was an albatross around the Dow, falling 31 percent today -- and 46 percent for the week -- as traders have started to raise questions about its viability.
Meanwhile, they're bidding up auto makers amid hopes that they're the next to get a handout from the federal government. General Motors was the top gainer on the Dow.
For the week, however, the Dow gained 200 points, or 1.8 percent, snapping a four-week losing streak. The S&P gained just under 1 percent and the Nasdaq was pretty much flat.
It was a dizzying week, that's for sure: Stocks started off with a nearly 300-point rally on Monday amid enthusiasm for the government bailout of Fannie Mae and Freddie Mac. But the air was quickly let out of the tires as investors began to increasingly worry about Lehman ... and then Washington Mutual ... and then AIG ... in what felt like an endless week of twists and turns. Of course, this was also the week that oil decided to drop below $100, just to keep things interesting.
You have to look at the big picture, Tobias Levkovich, chief U.S. equity strategist at Citi, told CNBC.
"There are different things going on in the market than there are at individual companies," Levkovich said. "The market is actually kind of looking past this," he said, referring to worries about the financial sector.
Indeed, financials were the biggest decliner this week, off 2.5 percent, but most other sectors were higher, with consumer staples, utilities and consumer discretionary stocks all up more than 2 percent for the week.
Levkovich sees the problem areas as energy, materials and industrials, with oil trading down near $100 a barrel and other economies around the world heading for a slump. He's overweight on health-care equipment and services, banks, insurance, chips and chip equipment.
Crude oil dipped below $100 a barrel before settling at $101.18 a barrel amid concerns about Hurricane Ike, which is barreling toward the Texas Gulf Coast.
Oil shed $5 a barrel this week, its second straight week of decline. Crude is now off about 30 percent from its record close of $145.29 on July 3.
General Motors jumped more than 5 percent, making it once again the Dow's top performer, as Goldman Sachs joined the bailout chorus, saying it is "more likely than not" that government money is coming for U.S. auto makers before Congress adjourns at the end of the month. That echoed sentiment a day earlier from JPMorgan.
GM shares are up nearly 40 percent since they hit $10 at the end of August. Shares of rival Ford are up roughly 14 percent in that amount of time.
Financials were the primary source of discontent.
Lehman Brothers shares dropped more than 13 percent, to close at $3.65. The stock has been under assault for months amid concerns about the brokerage's liquidity but the assault intensified this week, sending the stock down nearly 78 percent.
The buzz in the market is that a deal is coming this weekend, probably Sunday night. Several big names have been bandied about, including Barclays, Bank of America and HSBC .
Officials from the Federal Reserve and the Treasury are involved in negotiations going on behind closed doors at Lehman, but sources say U.S. Treasury Secretary Henry Paulson is "adamant" that no government money be used in any Lehman deal, the way it was used in the JPMorgan purchase of Bear Stearns in
(What will happen to the market if Lehman fails? Click on the video at left.)
AIG shares plummeted 31 percent, making it the biggest drag on the Dow today, as many say it's the next shoe to drop, given its exposure to the mortgage market. The world's largest insurer has half a billion invested in Fannie Mae and Freddie Mac and may need to raise additional capital. CEO Robert Willumstad is expected to unveil a turnaround plan on Sept. 25.
An anomaly in the sector, Washington Mutual shares finished down 3.5 percent after a brief jump. The company, the nation's largest savings and loan, issued a statement saying it has enough capital but Moody's downgraded it to "junk" status following news that the bank will add $4.5 billion to its loan-loss reserves.
WaMu shares have lost more than 92 percent of its value in the past 52 weeks.
Other financials were mixed as many investors are reluctant to take any chances on the sector.
Among other financials in traders' crosshairs today was Merrill Lynch, which tumbled more than 12 percent.
General Electric , a Dow component and parent of CNBC, fell 5 percent, making it the second biggest decliner on the Dow and one of the week's biggest blue-chip losers, amid concerns about the conglomerate's finance arm and commercial real-estate holdings.
Apple was the biggest decliner on the Nasdaq this week, shedding 7 percent, as investors sold off the stock after the company unveiled its revamped line of iPods. Rival Research In Motion , which said it will postpone the U.S. launch of the BlackBerry Bold, lost 1.2 percent this week.
In today's economic news, retail sales fell unexpectedly, while producer prices fellandconsumer sentiment hit an eight-month high.
Next week should be pretty eventful, with a Lehman deal expected Sunday night and traders focused on who might be next. Next week will also bring a pair of earnings from the sector, from Goldman Sachs and Morgan Stanley .
Traders will also be closely watching auto makers to see if the government throws them a $25 billion bone to help with retooling.
And, let's not forget oil prices, which could fall back below $100 once Ike is done wreaking havoc on the Gulf. Ike is expected to hit the Gulf coast of Texas early Saturday. Texas Governor Rick Perry said Ike could cause $100 billion in damages, which would make it the costliest storm in U.S. history.
Checking in on inflation, we'll get a reading on August consumer prices and rate decision by the Fed on Tuesday. Consumer prices are expected to be flat, held down by falling gasoline prices, and core prices, which exclude volatile food and energy costs, are expected to tick up 0.2 percent. As for the Fed, policy makers are widely expected to hold rates steady but there is increasing chatter about a possible rate cut by year end.
We got a sign of the inflationary times this past week, when 99 Cents Only Stores announced that it's raising its prices to 99.99 cents. Of course, there's no such thing as 1/100 of a penney, so it was also a sign of the marketing times.
Here's a question to think about this weekend, to distract you from the downpour in financials: Are 99 Cent stores going to change the cash registers to add more decimal places? Or, will the register show a dollar? If so, aren't there going to be a lot irate old ladies wagging their finger at the clerk?
Riot in aisle nine ... Riot in aisle nine ...
NEXT WEEK'S ROSTER:
Monday: Empire State manufacturing survey; industrial production
Tuesday: CPI; Fed meeting; Earnings from Goldman Sachs, Best Buy, Adobe Systems
Wednesday: Weekly mortgage applications; current account; housing starts; oil inventories; Earnings from Morgan Stanley and General Mills
Thursday: Weekly jobless claims; leading indicators; Philly Fed; natural-gas inventories; Earnings from FedEx, Oracle and Palm
Friday: Quadruple witching
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