For the historic week ending Friday, September 19, 2008, the major U.S. Indices managed to close mixed and almost flat after one of the most volatile trading weeks ever, driven by the collapse of investment bank, Lehman Brothers, enormous government actions around the globe, and billion dollar deal making. In one week, the government bailed out AIG, pumped funds into money markets, and banned short selling of financials - all while keeping the Fed Funds target unchanged and taking unprecedented actions to halt the liquidity crisis. The CBOE Volatility Index surpassed the benchmark level of 30, hitting an intraday high of 42.16 on Thursday, its highest level since 10/2002. The major indices were all up and down +/- 3% for 4 of the past 5 days. The Dow posted a 2 day point move of more than 778 points as of Friday’s close, after plummeting 811 between Monday and Wednesday and hitting 10,609.66, its lowest level since 11/9/2005. On Friday, The Nasdaq Composite recorded a 2-day point move of greater than 175 points after it closed down 109.05 points on Wednesday, its first triple digit decline for one day since it began trading after the 9/11 attacks. The S&P 500 flirted with record territory closing up 98.7 over the last two days, marking its biggest 2-day point move since 3/16/2000, the largest 2-day point move ever.
Next Week's Highlights: Next week there will be more economic news that could impact the markets including Gross Domestic Product (GDP- final), Durable Orders, New Home Sales, and Consumer Sentiment. Companies reporting earnings include Lennar Corp, Bed Bath & Beyond, Red Hat, Nike, Research in Motion, Discover Financial, and KB Home. Also Kraft Foods will replace AIG in the Dow Jones Industrial Average as of Monday.
Market Moving News: Dominated by Financials and the Credit Crunch
- Financial stocks crumbled on Monday on news that Lehman Brothers filed for Chapter 11 bankruptcy protection after the investment bank failed to find a buyer over the weekend, and the Federal Reserve offered no support. As per Lehman, the bankruptcy filing will not include its asset management business-Neuberger Berman said to be valued around $6 billion nor its broker dealer operations unit.
**Barclays U.K’s third largest bank stated that it will acquire Lehman’s brokerage business for $2 billion. The deal will allow Barclays to expand in asset underwriting and mergers & acquisition advisory businesses. Shares of Barclays’ American Depository Receipts (ADR) rallied 18.8% for the week, while Lehman shares tumbled 98.6% for the week.
- AmericanInternational Group’s stock lost more than half of its market value on Monday after the world’s largest insurer turned to the government in a failed plan to raise $40 billion in capital over the weekend. AIG also received New York state approval to post $20 billion of its insurance subsidiaries assets as collateral in order to create liquidity. Furthermore, on Tuesday, the insurer’s credit ratings were downgraded by the three major credit agencies, as the government came to AIG’s rescue with a short-term $85 billion “bridge loan” avoiding filing for bankruptcy. AIG’s shares hit a 23-year low, closing at $3.75/share on Tuesday, levels not seen since October 1985, plummeting 68.3% for the week, and resulting in its replacement by Kraft Foods (KFT) to the Dow Jones Industrial Average Index.
- Bank of America the second largest U.S retail bank announced it will seize Merrill Lynch for $50 billion, representing a 70% premium of Merrill’s 9/12 closing price, in a deal that will create a global financial behemoth. This will mark the second biggest merger for the year for Bank of America, which had acquired troubled mortgage lender Countrywide Financial in early July. Both Merrill Lynch and Bank of America’s stocks rallied 73% and 11% respectively for the week.
- On Friday, the U.S Securities and Exchange Commission (SEC) announced a temporary halt to short-trading practices, targeting hedge fund managers from short-selling on 799 financial companies. The ban aims to restore value in stock prices of financial institutions and will take effect immediately through October 2, 2008. Some of the shares that can not be shorted include: Zions Bancorp (ZION), WellPoint (WLP), Wells Fargo (WFC), Ambac Financial (ABK), Blackstone Group (BX), Goldman Sachs (GS), Morgan Stanley (MS), and NYSE Euronext (NYX) to name a few.
**Friday’s huge rally was also attributed to the U.S. Treasury's costly plans to remove “illiquid assets from financial institution’s” balance sheets, financing it through the sale of treasuries which is said will cost as much as a half of a trillion dollars.
**In addition, under the new government insurance program, $50 billion from the Treasury’s Exchange Stabilization Fund, which was created in 1934, will be used to insure the holdings of any eligible publicly offered money-market fund.
- Money manager stocks like StateStreet, Genworth Financial , Bank of NY Mellon faced heavy selling pressure on Thursday, a day after one of the largest money market funds-The Reserve Primary Fund was basically cashed out by frantic investors pulling out approximately $40 billion, causing the fund to fall below the time honored Net Asset Value (NAV) $1/shared in a term defined as “breaking the buck”. State Street’s stock reached a 10-year low as it touched an intraday low of $29.09/share on Thursday, a level not seen since Oct 1998. Shares of STT fell 16.8% for the week, while BK also shed 10.6% for the week.
- As the credit crunch is linked to the housing market meltdown, Housing stocks faced another week of selling pressure affected by negative report from the Commerce Department that showed housing starts had dropped by a bigger than expected 6.2% in August, declining to their lowest level since January 1991. Housing stocks that took a big hit on Wednesday after the housing report included: Centex Corp (CTX), Pulte Homes (PHM), DR Horton (DHI), Lennar Corp (LEN), all dropped 11.4%,11.5%, 5% &12% respectively.
M&A, Deals, Corp Actions:
The take over of financial firms spread abroad, as British bank Lloyds proposed to acquire U.K mortgage lender and bank owner HBOS PLC for $22 billion, marking one of the biggest U.K banking deals in history. The combined synergies will account about a third of all UK mortgages and a quarter or approximately $715 billion of all U.K savings deposits will be tied to this entity. Shares of Lloyds’ American Depository Receipts (ADR) managed to finish up 7.9% for the week.
Walgreen proposed to acquire Long Drug Stores (LDG) for approximately $3 billion including its debt, topping CVS Caremark’s (CVS) prior deal with Long Drugs for $2.61 billion. The merger will allow Walgreen to expand its prescription plans in California and Hawaii, where Long Drugs has dominant presence. Shares of Walgreen and Long Drug’s stock both advanced more than 4.5% for the week.
DatascopeCorp agreed to be acquired by Sweden’s pharmaceutical firm Getinge for approximately $830 million as the buyout is expected to strengthen Getinge’s cardiovascular market in the U.S. Datascope’s stock closed higher for the week, up 1.7% on merger news.
Best Buy agreed to buy Napster Inc. (NAPS) for $121 million in an effort to compete against Apple’s iTunes, with hopes of reaching new customers. Best Buy's deal came after the company reported disappointing 2Q net income decline of 19% on higher spending from additional stores and acquisition of new ventures. Shares of Best Buy dropped 6.7%, while Napster Inc more than tripled for the week, up 89.7%.
Gold for December delivery posted the biggest one day gain ever in dollar terms as it jumped up more than $90/ounce during intraday Wednesday, to close up $70 at $850.50/ounce, beating its previous single day record increase of $63/ounce set on 1/29/1980. Fears of more credit market turbulence led investors to flock to this safe-haven investment, which consequently rose 13.1% for the week.
Silver for December delivery also soared $1.025/ounce to close at $12.7/ounce on Thursday on gold’s rally. Weakness in the US dollar prompted silver to be the top winner amongst metals for the week, up 15.56%.
Crude Oil for October delivery traded up three consecutive days to settle on Friday at $104.55/barrel, finishing up 3% for the week. Higher prices this week were supported by tight supplies led by disruptions from Hurricane Ike over the past weekend. As of Thursday, 93% of the US oil production facilities remained shut in the Gulf of Mexico.
Raw Sugar for March 09 delivery traded at intraday high levels of 14.31cents/lb on Thursday as investor’s short covering inspired buying in this soft commodity, gaining 10.4% for the week.
**Talks of a Malaysian purchase of 2.7 million tons of bulk raw sugar on Thursday under a 3-year contract was believed to cause hedging against the Malaysian sugar deal.
Currencies: The U.S. dollar was weaker against most major currencies on Friday, as investors sought riskier trades in higher-yielding currencies, following the news that the U.S. government would spend several billion dollars in an effort to aid the battered financial sector.
- The dollar index fell 1.65% for the week, trading at 77.67 Friday, from 78.02 late Thursday. The dollar index was poised for its first weekly decline since the week ending August 23.
- As some European exchanges prohibited short selling of financial companies, many central banks stepped in on Thursday to infuse $180 billion dollars into money markets through currency-swap agreements. The euro strengthened 1.77% for the week, rising as high as $1.4538 per euro on Friday. During the afternoon trading session in New York, the euro was at $1.4466, from $1.4266 late Thursday.
- The pound sterling gained ground against the U.S. dollar, rising 2.31% for the week. The pound traded at $1.8356 Friday, from $1.8178 late Thursday. August retail sales data in the United Kingdom released on Thursday showed an unexpected increase. However, U.K. mortgage lending figures fell 12% in August, marking a 36% drop for the year. August public sector net borrowing in the United Kingdom jumped to 10.4 billion pounds, its highest increase for the month since 1993, according to Thompson Reuters data.
- The U.S. dollar strengthened 1.39% against the Japanese yen, its highest one-day percent increase since August 22 of this year. The U.S. dollar rose as high as 108.00 yen on Friday, from 105.42 yen late Thursday.
- The high-yielding Australian dollar jumped 3% on Friday, trading at $0.8315 per Aussie, while the New Zealand dollar appreciated 1.71% to $0.6883 per kiwi.
- The Dow ended down -33.55 or -0.29% for the week
- Friday, the Dow closed at 11,388.44, up 368.75 or 3.35%
- The Dow is Negative YTD down -14.15%
- The Dow is off by -2,776.09 or -19.60% from the market peak on October 9th of 14,164.53
- The NASDAQ ended up 12.63 or 0.56% for the week
- Friday, the NASDAQ Composite closed at 2,273.90, up 74.80 or 3.40%
- The NASDAQ is Negative YTD down -14.27%
- The NASDAQ is off by -585.22 or -20.47% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended up 3.38 or 0.27% for the week
- Friday the S&P 500 closed at 1,255.08, up 48.57 or 4.03%
- The S&P is Negative YTD down -14.53%
- The S&P is off by -310.07 or -19.81% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, September 19, 2008:
S&P 500 Financials Sector (.GSPD) Up 20.94 or 7.41%
S&P 500 Energy Sector (.GSPM) Up 18.68 or 3.60%
S&P 500 Materials Sector (.GSPS) Up 3.04 or 1.30%
S&P 500 Information Technology Sector (.GSPF) Down -4.58 or -1.36%
S&P 500 Consumer Discretionary Sector (.GSPT) Down -3.38 or -1.38%
S&P 500 Industrials Sector (.GSPHC) Down -4.43 or -1.46%
S&P 500 Health Care Sector (.GSPU) Down -9.42 or -2.52%
S&P 500 Consumer Staples Sector (.GSPE) Down -8.30 or -2.76%
S&P 500 Telecomm Services Sector (.GSPTS) Down -3.84 or -3.00%
S&P 500 Utilities Sector (.GSPI) Down -6.53 or -3.56%
S&P 10 Top Performers for the week ending Friday, September 19, 2008:
Merrill Lynch & Co Inc (MER) Up 12.45 or 73.02%
Regions Financial Corp (RF) Up 8.11 or 69.38%
Marshall & Ilsley Corp (MI) Up 11.34 or 62.44%
Washington Mutual Inc (WM) Up 1.52 or 55.68%
MGIC Investment Corp (MTG) Up 3.40 or 49.93%
Huntington Bancshares Inc (HBAN) Up 4.15 or 48.26%
SanDisk Corp (SNDK) Up 6.83 or 43.53%
Zions Bancorporation (ZION) Up 15.35 or 40.96%
Wachovia Corp (WB) Up 4.48 or 31.39%
The Chubb Corp (CB) Up 14.93 or 30.12%
S&P 10 Worst Performers for the week ending Friday, September 19, 2008:
American International Group Inc (AIG) Down -8.29 or -68.29%
Constellation Energy Group Inc (CEG) Down -32.61 or -55.87%
Morgan Stanley (MS) Down -10.02 or -26.91%
Office Depot Inc (ODP) Down -1.66 or -22.62%
General Growth Properties Inc (GGP) Down -6.13 or -22.25%
Ashland Inc (ASH) Down -7.11 or -18.47%
AK Steel Holding Corp (AKS) Down -7.15 or -18.21%
Goldman Sachs Group Inc (GS) Down -24.41 or -15.83%
State Street Corp (STT) Down -11.25 or -15.69%
Precision Castparts Corp (PCP) Down -14.65 or -14.22%
Dow Top Performers for the week ending Friday, September 19, 2008:
Citigroup Inc (C) Up 2.69 or 14.98%
JPMorgan Chase and Co (JPM) Up 5.88 or 14.28%
Bank Of America Corp (BAC) Up 3.74 or 11.08%
Chevron Corp (CVX) Up 3.56 or 4.23%
American Express Co (AXP) Up 1.45 or 3.72%
3M Company (MMM) Up 2.53 or 3.61%
E I du Pont de Nemours and Co (DD) Up 1.65 or 3.56%
The Walt Disney Co (DIS) Up 1.13 or 3.40%
Hewlett-Packard Co (HPQ) Up 1.29 or 2.75%
Exxon Mobil Corp (XOM) Up 2.11 or 2.72%
Dow Worst Performers for the week ending Friday, September 19, 2008:
American International Group Inc (AIG) Down -8.29 or -68.29%
Microsoft Corp (MSFT) Down -2.46 or -8.91%
ALCOA Inc (AA) Down -1.88 or -6.56%
Merck & Co Inc (MRK) Down -1.98 or -5.85%
The Boeing Co (BA) Down -3.54 or -5.59%
Home Depot Inc (HD) Down -1.43 or -4.97%
Intel Corp (INTC) Down -0.93 or -4.61%
Wal-Mart Stores Inc (WMT) Down -2.71 or -4.34%
Procter & Gamble Co (PG) Down -2.79 or -3.81%
AT&T Inc (T) Down -1.11 or -3.52%
Key Earnings next week:
Monday: AutoZone (AZO), Carmax (KMX)
Tuesday: Lennar Corp. (LEN)
Wednesday: Bed Bath & Beyond (BBBY), Nike (NKE), Paycheck (PAYX), Red Hat (RHT)
Thursday: Discover Financial (DFS), Rite Aid (RITE), Research in Motion (RIMM)
Friday:KB Home (KBH)
Economic Data next week:
Wednesday: Existing Home Sales, Crude Inventories (weekly)
Thursday: Durable Goods Orders, Jobless Claims, New Home Sales, Money Supply
Friday: Gross Domestic Product (final), Corporate Profits, Consumer Sentiment