For the week ending Friday, September 12, 2008, the major U.S. Indices finished up for a week marked with the demise of more financial stocks, sluggish Retail Sales data, a steeper than expected decline in Pending Home Sales, and a looming hurricane in the Gulf of Mexico. Volatility continues to dominate the markets as the Dow posted a 2 day consecutive up/down point move of 569 points on Monday and Tuesday (up 289 and then down 280), its largest 2-day up/down point swing since June 6. The CBOE Volatility Index which measures market uncertainty reached an intraday high of 26.67 on Friday.
Next Week's Highlights: Next week the markets will dissect brokerage earnings of troubled investment bank Lehman Brothers, as well as Goldman Sachs and Morgan Stanley. Other companies reporting include Adobe Systems, Oracle, FedEx, and General Mills. Key Economic data includes Industrial Production, Consumer Price Index, Housing Starts, and the anticipated FOMC Meeting on Tuesday. The energy markets will watch for any disruption to the oil rigs in the Gulf of Mexico, as Hurricane Ike strikes the Texas coast over the weekend.
M&A, Deals, Corp Actions:
Deutsche Bank agreed to acquire nearly a 30% stake in the German retail bank, Postbank for about $3.9 billion. The proposed deal will provide Deutsche Bank a stronger presence in the German retail banking sector. Shares of DB finished almost flat for the week or -0.2%.
Biotechnology company, Imclone Systems rejected Bristol Myers’ acquisition deal of $4.5 billion publicized in July for a more attractive offer of $70/share from another unspecified pharmaceutical company. Shares of Imclone hit a 4-year high at $68.89 on Wednesday, surpassing Bristol Myers’ earlier bid of $60/shares, and closed up 3.1% for the week.
ConocoPhillips announced it will pay up to $7.8 billion for half of the Australia’s Origin Energy coal-seam gas assets. The deal will invalidate a prior offer made by BG Group to acquire Origin Energy valued at $11.2 billion. Shares of ConocoPhillips fell 2.7% for the week.
Gehl Co. a light-construction equipment manufacturer agreed to an acquisition of $360 million by French firm Manitou in a deal that would allow Manitou to expand internationally and broaden its product’s offerings. Shares of Gehl surged 117% for the week on merger news.
Other Market Moving News:
- Financial stocks took another big hit with the S&P Financial sector dropping 2.5% for the week on worries of capital-shortage from financial firms.
- The U.S. government announced a bail-out plan for Fannie Mae and Freddie Mac which includes a $1 billion rescue of each company’s preferred shares, as well as $200 billion injection for both companies to cover losses associated with defaulting mortgages. Common shares of Freddie Mac’s plunged $4.64 or 91% while Fannie Mae plummeted $6.3 or 90% for the week, as the U.S treasury capital infusion did not increase investors’ confidence in these two Government Sponsor Enterprises (GSE). Both FRE and FNM were removed from the S&P 500.
- Lehman Brothers ended talks of raising additional capital with foreign investor Korea Development Bank, while the investment bank seeks other potential buyers such as Bank of America (BAC), Barclays, and HSBC. Lehman Brothers also announced additional plans to sell off most of its commercial real-estate assets to shareholders, as well as give up 55% of its investment management unit, cut dividends by 93%, and forecast a 3Q loss of $3.9 billion. As a result, Lehman shares hit a new 52-week low as its stock traded at an intraday low $3.17/share on Friday and closed at $3.65, its lowest closing price since December 1994, finishing down 78% for the week.
- Washing Mutual was amongst the S&P Financials worst performers as its stock traded at a 22 1/2 year low, reaching an intraday low of $1.75/share on Thursday. Investors’ shorted WaMu’s stock on the notion that the bonds backed by the company are likely to default in the near term. Also, the company ousted Kerry Killinger, replacing him with the new Chief Executive Officer, Alan Fishman.
- American International Group is also facing capital constraints. The insurance firm is pondering selling or spinning off parts of its business units in order to raise capital. Shares of AIG sank to a 52-week low at $11.49/share on Friday, and traded at its worst level since November 1992, shedding 46% for the week.
- The technology sector experienced new product launches from Blackberry maker Research in Motion and tech giant Apple. On Tuesday, Apple’s CEO Steve Jobs introduced a new iPod Nano and Touch Music players. RIMM unveiled a flip version of its Pearl Blackberry which will be available this Fall. New upgrades to Apple's music products did not help Apple's stock, as its shares finished down 7% for the week.
Crude for October delivery dipped below $100/barrel on Friday, the lowest price since early April on continued weak global demand and an appreciating dollar. Crude also closed down 5% for the week in spite of OPEC’s decision to reduce output by 520,000 barrels a day, and a sharp decline in crude supplies of 5.9 million/barrels in EIA’s weekly report.
Gulf Coast Diesel for January delivery edged higher for the week or up 4.15%, settling at $3.0335/gallon on Friday despite a rundown in crude prices. Commodity traders are eyeing Hurricane Ike currently a Category 2 for another possible strike to the production facilities in the Gulf of Mexico over the weekend.
RBOB Gasoline for October delivery rose 3.11% for the week as refineries began shutting operations in the Gulf. Thus, according to a report issued on Wednesday by the U.S Minerals and Management Services, approximately 96% of the oil production and 73% of the natural gas in the Gulf had been shut down.
**Nevertheless, the national average of regular gasoline prices is still off ~44 cents or -11% on Friday from its latest record of $4.114/gallon set on 7/17, as per AAA fuel gauge report. The average unleaded gas price is still up almost 31% from a year ago.
**Diesel is also off ~66 cents or -14% on Friday from its record peak of $4.845/gallon reached on 7/17 as per AAA, yet Diesel is also up 41% from a year ago.
Gold for December delivery dropped 4.77% for the week as this safe-haven investment has an inverse relationship to an appreciating dollar. Gold had its first gains on Friday as it settled at $764.5/ounce, ending 9 consecutive sessions of decline, its biggest loosing streak in 8 years, since an 11-day drop ending 9/18/00
Silver for December delivery tumbled 12.4% for the week as curbed demand for this precious metal persists. Silver traded at lower levels at it reached an intraday low of $10.31/ounce on 9/11, levels not seen since June 2006. Silver is also amongst one of the worst metal performers for the year, down 28%.
Corn for December delivery gained 2.69% for the week as corn recovered earlier losses associated with declining oil prices. This commodity which is used for ethanol traded up $5.6325/bushel on Friday on tight supplies reported by US Department of Agriculture.
**On Friday the US Department of Agriculture lowered its corn production projection for 2008 at 12.1 billion bushels, down almost 2% from last month’s projection of 12.3 billion bushels.
Currencies: Friday, the U.S. dollar was lower against the euro and pound sterling, as uncertainty over the future of Lehman Brothers, Washington Mutual, and American International Group, ignited profit taking among currency investors. Interest rates futures priced an approximately 34% chance of a rate cut by the end of the year, according to Thomson Reuters.
- The dollar index was down 1.43% against a basket of six currencies, trading at 78.96 Friday. However, the dollar index hit an intraday high of 80.38 on Thursday, its highest level since September 7, 2007.
- The euro rebounded from a year low against the greenback, trading at $1.4207 Friday, from $1.3995 late Thursday, while the pound sterling was 2% higher versus the U.S. dollar, trading at $1.7932 Friday, from $1.7580 late Thursday.
** The European statistics agency released a report on Friday indicating that July industrial output in the euro zone fell at its fastest annual rate in five years. The euro zone GDP fell 0.2% during the second quarter; it was the economy’s first contraction since 1995 when the data was first recorded.
- The Japanese yen was lower against the dollar, trading at 107.85 yen Friday, from 107.16 yen late Thursday.
**Recent comments by Japan’s Economic Minister Kaoru Yosano, have pointed to a further economic slowdown in Japan, due to a global slowdown, high-energy costs, and unstable financial markets in the United States. The Bank of Japan is expected to leave interest rates unchanged at 0.5%.
- As the U.S. dollar strengthens, governments around the world are stepping in to support their currencies from further depreciating against the greenback, according to an article by the Wall Street Journal. South Korea, Thailand, Argentina, India, and Russia are some of the countries tapping their reserves to support their currencies. Russia spent approximately $14B in August in an effort to defend its currency from weakening, while South Korea has spent over $21B in the past five months, the article stated.
** The U.S. dollar has appreciated 8.94% in the past three months versus the Russian rouble, trading at 25.5386 per dollar on Friday, while the Korean won has weakened 5.30% during the same period, trading at 1106.5 won Friday.
- The Dow ended up 201.03 or 1.79% for the week
- Friday, the Dow closed at 11,421.99, down -11.72 or -0.10%
- The Dow is Negative YTD down -13.89%
- The Dow is off by -2,742.54 or -19.36% from the market peak on October 9th of 14,164.53
- The NASDAQ ended up 5.39 or 0.24% for the week
- Friday, the NASDAQ Composite closed at 2,261.27, up 3.05 or 0.14%
- The NASDAQ is Negative YTD down -14.74%
- The NASDAQ is off by -597.85 or -20.91% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended up 9.39 or 0.76% for the week
- Friday the S&P 500 closed at 1,251.70, up 2.65 or 0.21%
- The S&P is Negative YTD down -14.76%
- The S&P is off by -313.45 or -20.03% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, September 12, 2008:
S&P 500 Consumer Staples Sector (.GSPE) Up 8.44 or 2.89%
S&P 500 Utilities Sector (.GSPI) Up 4.53 or 2.53%
S&P 500 Consumer Discretionary Sector (.GSPT) Up 5.79 or 2.43%
S&P 500 Materials Sector (.GSPS) Up 4.91 or 2.15%
S&P 500 Health Care Sector (.GSPU) Up 6.11 or 1.66%
S&P 500 Energy Sector (.GSPM) Up 3.37 or 0.65%
S&P 500 Industrials Sector (.GSPHC) Up 1.95 or 0.65%
S&P 500 Information Technology Sector (.GSPF) Up 1.47 or 0.44%
S&P 500 Telecomm Services Sector (.GSPTS) Down -0.20 or -0.16%
S&P 500 Financials Sector (.GSPD) Down -7.33 or -2.53%
S&P 10 Top Performers for the week ending Friday, September 12, 2008:
General Motors Corp (GM) Up 2.30 or 21.48%
Micron Technology Inc ( MU) Up 0.77 or 17.66%
Sunoco Inc (SUN) Up 6.11 or 14.64%
Zions Bancorporation (ZION) Up 4.51 or 13.68%
Pulte Homes (PHM) Up 1.87 or 12.83%
New York Times Co (NYT) Up 1.68 or 12.38%
Johnson Controls Inc (JCI) Up 3.43 or 11.63%
CH Robinson Worldwide Inc (CHRW) Up 5.68 or 11.39%
Ford Motor Co (F) Up 0.50 or 11.34%
Sears Holdings Corp (SHLD) Up 9.97 or 10.99%
S&P 10 Worst Performers for the week ending Friday, September 12, 2008:
Lehman Brothers Holdings Inc (LEH) Down -12.55 or -77.47%
American International Group Inc (AIG) Down -10.20 or -45.66%
Merrill Lynch & Co Inc (MER) Down -9.68 or -36.21%
Washington Mutual Inc ( WM) Down -1.54 or -36.07%
MGIC Investment Corp (MTG) Down -2.40 or -26.06%
MBIA Inc (MBI) Down -3.62 or -21.79%
Massey Energy Co (MEE) Down -9.31 or -17.26%
SLM Corp (SLM) Down -2.58 or -15.11%
Wachovia Corp (WB) Down -2.48 or -14.81%
MEMC Electronic Materials Inc (WFR) Down -5.85 or -14.56%
Dow Top Performers for the week ending Friday, September 12, 2008:
General Motors Corp (GM) Up 2.30 or 21.48%
Microsoft Corp (MSFT) Up 1.97 or 7.68%
McDonald's Corporation (MCD) Up 3.76 or 6.24%
The Walt Disney Co (DIS) Up 1.90 or 6.06%
Chevron Corp (CVX) Up 4.02 or 5.01%
The Coca Cola Co (KO) Up 2.57 or 4.95%
E I du Pont de Nemours and Co (DD) Up 2.14 or 4.84%
Bank Of America Corp (BAC) Up 1.51 or 4.69%
Hewlett-Packard Co (HPQ) Up 2.01 or 4.47%
International Business Machines Corp (IBM) Up 4.64 or 4.06%
Dow Worst Performers for the week ending Friday, September 12, 2008:
American International Group Inc (AIG) Down -10.20 or -45.66%
Citigroup Inc (C) Down -1.11 or -5.82%
General Electric Co (GE ) Down -1.13 or -4.05%
Intel Corp (INTC) Down -0.45 or -2.18%
Merck & Co Inc (MRK) Down -0.48 or -1.40%
American Express Co (AXP) Down -0.45 or -1.14%
Johnson and Johnson (JNJ) Down -0.08 or -0.11%
AT&T Inc (T) Up 0.04 or 0.13%
United Technologies Corp (UTX) Up 0.38 or 0.59%
Pfizer Inc (PFE) Up 0.11 or 0.59%
Key Earnings next week:
Monday: Pall (PLL)
Tuesday: Goldman Sachs (GS), Best Buy (BBY), Adobe Systems (ADBE), Kroger (KR)
Wednesday: Morgan Stanley (MS), General Mills (GIS)
Thursday: FedEx(FDX), ConAgra (CAG), Lehman Brothers (LEH), Oracle (ORCL), Palm (PALM)
Economic Data next week:
Monday: Industrial Production
Tuesday: Consumer Price Index, Housing Market Index
Wednesday: Housing Starts, Crude Inventories (weekly)
Thursday: Jobless Claims, Leading Indicators, Philadelphia Fed Survey, Money Supply