For the week ending Friday, September 26, 2008, the major U.S. Indices tumbled for the week as uncertainty lingered over the Congressional $700B bailout package. We also witnessed a historic bank failure, unsatisfying housing data, a continued rise in jobless claims, and a record one-day gain in the price of crude. The S&P 500 and NASDAQ Composite shed more than 3% for the week. The NASDAQ had the worst weekly performance amongst the three major indices, losing 3.98%, followed by S&P 500 which lost 3.3%, marking their biggest weekly drops since the start of Sept. for the NASDAQ & since mid May for the S&P.
- Wild market swings deteriorated investors’ confidence with the investor’s fear gauge, CBOE Volatility Index , closing above 30 for the tenth consecutive day on Friday, levels not seen in more than 5 years since March 2003.
- Money markets remained distressed, as investors ran to treasuries and short-interest rate spreads skyrocketed. The TED Spread, or the spread between the 3-month dollar LIBOR and the 3-month T-Bill, was over 300 basis points at times this week.
- The New York Stock Exchange and NASDAQ OMX Group added more names to the short-sell ban. The list now includes more than 900 companies safe from shorting. Some of the companies included in this week’s additions are, General Electric (GE), Mizuho Financial Group (MFG), Legg Mason (LM), and CIT Group (CIT).
***A short sale is the sale of a borrowed asset by investors with hopes of profiting from the declining security by buying an equal amount of shares later at a lower price to replace the borrowed assets.
Next Week's Highlights: The markets will react to any decisions that come from the proposed Congressional bailout. The ban on short selling of financials is set to expire on Oct 2. The markets will also digest Employment Situation, Construction Spending, Consumer Confidence, ISM Manufacturing. Companies reporting before the big earning season starts, include: Walgreen, Pepsi Bottling, Mosaic, Constellation Brands, and Marriott International.
M&A, Deals, Corp Actions:
Washington Mutual was seized by Federal Regulators and is considered the largest bank failure in U.S. history, thus marking the third major casualty to suffer from the financial crisis, which originally began with the collapse of Bear Stearns and followed by the downfall of Lehman Brothers. WaMu’s demise led to a JP Morgan Chase deal to buy WaMu’s banking operations and assets for $1.9 billion, as JP Morgan will face a costly challenge of writing down about $31 billion of WaMu’s bad loans and will seek to raise $8 billion in new capital. WaMu’s shares fell 96% for the week.
Berkshire Hathaway’s Warren Buffett announced his plans to inject $5 billion into Goldman Sachs’ through a purchase of preferred stock. In addition, Berkshire received warrants to buy $5 billion of Goldman Sach’s common stock, with a 5-year term to be exercised at $115/share. Berkshire Hathaway Class A finished down 8.2% for the week, while Goldman’s stock managed to stay positive, up 6.3% for the week. Buffett’s investment in Goldman Sachs will account for a 10% stake in the firm
**Buffett also supports the $700 billion government bailout plan proposed by Treasury Secretary Henry Paulson and backed by Federal Reserve Chairman Ben Bernanke.
** Shareholders of Wm Wrigley Jr. voted to approve the $23 billion takeover by Mars Inc., a deal which is being partly financed by Buffett.
Morgan Stanley agreed to sell a 20% stake or approximately $8.4 billion to Japanese bank Mitsubishi UFJ Financial Group. The deal comes after Morgan Stanley and Goldman Sachs (GS) announced their intentions to convert to traditional bank holding companies. The deal will allow to obtain a greater presence in the U.S. banking sector, shoring up its second deal with an American financial firm since its first $3B acquisition of California retail bank, UnionBanCal (UB), in August. Shares of MS dipped 9% for the week, while MTU’s American Depository Receipts advanced 8.7%.
The Federal Aviation Administration and shareholders approved the merger between Delta and Northwest Airlines in a deal that will result in the world’s largest airline with annual revenue of more than $35 billion, a total headcount of 75,000 employees, and airline fleet of 800 aircraft. The deal is expected to face completion in late December. Shares of DAL and NWA lost altitude, both falling 15% or more for the week despite a pullback in oil prices.
Pharmaceutical giant Bristol-Myers Squibb sweetened its offer for Imclone Systems , by raising its take-over bid to $62/share from July’s $60/share offer. A hostile bid emerged on September 10th, when Imclone announced that an undisclosed company had proposed a more attractive offer of $70/share for the firm. Shares of IMCL rose 5.8%, while BMY finished almost flat or down 0.8% for the week.
McAfee the provider of anti-virus software said it plans to acquire the Internet Security company Secure Computing Corp. for $465 million, representing a 27% premium of the firm’s previous closing price of $4.52. The move will allow McAfee to strengthen its position in the network-security market, as it is already the world’s second largest security software maker, with Symantec (SYMC) holding first place. Shares of Secure Computing Corp rallied 23.45% on Monday on merger news, while McAfee’s stock fell 4.2%.
Other Market Moving News:
- General Electric lowered its third quarter and full-year guidance and depicted lower gains due to the credit crunch. GE also announced the suspension of stock buybacks, and stated it will not increase its dividend for the first time since 1970. The new measures will allow GE to maintain its AAA credit rating, and boost liquidity. Consequently, GE’s stock finished down 5% for the week.
- Deutsche Telekom’s mobile carrier T-Mobile USA revealed on Tuesday its touch screen G1 smart-phone that will operate on Google’s (GOOG) Android operating system. The G1 presents great competition against rival Apple’s iPhone since is slightly cheaper, selling for $179 compared to $199 for the iPhone. Both Google’s stock and DT’s American Depository Receipts fell 4% and ~1% for the week, despite reports of new products.
Crude for November delivery, the new front contract gained 4% for the week, after crude climbed 15.7% or $16.37 on Monday settling at $120.92/barrel, its biggest one day percentage gain and dollar change ever since NYMEX began trading crude contracts in 1983. Crude moved higher for the week on anxiety over the government’s plans to calm the financial crisis, on which Treasury’s own financing plans may incur the auctioning of more Treasury securities and drive the dollar down. On Friday crude settled lower at $106.89/barrel, and its off 27% from its record intraday-peak of $147.27/barrel reached on 7/11.
**According to AAA, the national average price of retail gasoline has increased 31% from a year ago, but down ~3% for the week.
**A hefty drawdown in Energy Information Administration’s (EIA) gasoline stockpiles of 5.9 million barrels for the week ending 9/19 led to a new record low in supplies, yet U.S. demand for petroleum has weakened as it has declined 3.5% from a year ago to 9 million barrels/day as of 9/19.
Heating Oil for October delivery gained 3.35% for the week as it rose to an intraday high of $3.1108/gallon on Wednesday, a level not seen since 9/8. Heating also edged higher as supplies fell by 4.2 million barrels for week ending 9/19 as per EIA. Heating oil which is used to warm homes has increased 13% for the year as uncomfortable inventories, and winter nearing has many traders worrying on whether supply will be able to meet winter demand.
Gold for December delivery gained 2.8% for the week as it reached an intraday high of $920.1/ounce on Friday led by worries that a government rescue plan of ailing financial assets could add to inflation, resulting in the depreciation of a dollar, and an increase in investment of dollar denominated commodities.
Silver for December delivery jumped 8.2% for the week after touching an intraday high of $13.88/ounce on Thursday, as nervousness over the bail-out prospects allowed for another week of safe-haven buying. Yet, as of Friday’s settled price, silver is off ~33% from its market record close set on 3/5/08 at $20.785/ounce.
Pork Bellies for February 09 delivery finished up 9.7% for the week after having six consecutive days of gains and settled higher on Friday at 99.68 cents/pound. Pork bellies futures contracts were supported by an upbeat Chicago Mercantile Exchange (CME) report that showed warehouse supplies of this food staple decreased by 2.328 million/pounds last week compared to 1.512 million/pounds the previous year.
Currencies: The U.S. dollar depreciated against most major currencies for the week, with investors anxiously waiting for lawmakers to make a decision over the proposed $700 billion financial bailout. As policymakers continued to debate the fate of the financial bailout plan, investors sought safe-haven bets, buying government bonds, and selling high-yielding currencies.
- Increased risk aversion and uncertainty in the markets due to the financial turmoil has led the greenback to fall against the Japanese yen, euro, and pound sterling. The dollar index fell nearly 1% for the week to 76.92, as investors remained hopeful that a deal to aid the troubled financial sector would soon come to terms.
- Currency traders unwound riskier bets against high-yielding currencies, pushing up the yen as high as 105.06 versus the greenback. During the afternoon trading session in New York, the yen traded at 106.01 per U.S. dollar, from 106.54 yen late Thursday, up about 1.3% for the week.
- Deteriorating housing data in England and Wales showed a 1.9% decline in home prices for the month of August, marking a 4.6% decline below their level a year ago, according to Thompson Reuters. The pound sterling hit a one-month high of $1.8667 against the U.S. dollar on Thursday; however, it was lower on Friday trading at $1.8417 per pound.
- The euro was little unchanged during Friday’s afternoon session, trading at $1.4610, from $1.4607 late Thursday, up 1% for the week. The Australian dollar traded at $0.8302, from $0.8350 late Thursday.
- Central banks across the world prompted up efforts to increase liquidity, with the ECB, the Bank of England and Swiss National Bank injecting $74 billion into the markets, as the financial crisis has led banks to tighten their lending practices. The Federal Open Market Committee authorized the establishment of swap facilities with the Reserve Bank of Australia, and three other banks in an effort to improve U.S. dollar liquidity in amounts ranging from $5 to $10 billion. It is the first time that the Australian Central Bank launches a U.S. dollar repurchase action. The sum represents a $30 billion addition to the previous $247 temporary reciprocal currency arrangement with various central banks around the world.
- The Dow ended down -245.31 or -2.15% for the week
- Friday, the Dow closed at 11,143.13, up 121.07 or 1.10%
- The Dow is Negative YTD down -15.99%
- The Dow is off by -3,021.40 or -21.33% from the market peak on October 9th of 14,164.53
- The NASDAQ ended down -90.56 or -3.98% for the week
- Friday, the NASDAQ Composite closed at 2,183.34, down -3.23 or -0.15%
- The NASDAQ is Negative YTD down -17.68%
- The NASDAQ is off by -675.78 or -23.64% from the market peak on October 31 of 2,859.12
- S&P 500
- The S&P 500 ended down -41.81 or -3.33% for the week
- Friday the S&P 500 closed at 1,213.27, up 4.09 or 0.34%
- The S&P is Negative YTD down -17.37%
- The S&P is off by -351.88 or -22.48% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, September 26, 2008:
S&P 500 Health Care Sector (.GSPU) Down -1.83 or -0.50%
S&P 500 Consumer Staples Sector (.GSPE) Down -2.45 or -0.84%
S&P 500 Utilities Sector (.GSPI) Down -2.43 or -1.37%
S&P 500 Information Technology Sector (.GSPF) Down -5.30 or -1.59%
S&P 500 Telecomm Services Sector (.GSPTS) Down -2.82 or -2.27%
S&P 500 Energy Sector (.GSPM) Down -17.64 or -3.29%
S&P 500 Consumer Discretionary Sector (.GSPT) Down -10.54 or -4.38%
S&P 500 Industrials Sector (.GSPHC) Down -16.83 or -5.64%
S&P 500 Financials Sector (.GSPD) Down -18.21 or -6.00%
S&P 500 Materials Sector (.GSPS) Down -23.05 or -9.76%
S&P 10 Top Performers for the week ending Friday, September 26, 2008:
Legg Mason Inc (LM) Up 4.44 or 10.98%
Microsoft Corp (MSFT) Up 2.24 or 8.90%
MBIA Inc (MBI) Up 0.86 or 6.68%
Nike Inc (NKE) Up 4.09 or 6.42%
Goldman Sachs Group Inc (GS) Up 8.19 or 6.31%
The DIRECTV Group Inc (DTV) Up 1.31 or 5.19%
Loews Corp (L) Up 2.01 or 4.90%
Gilead Sciences Inc (GILD) Up 2.18 or 4.69%
Northern Trust Corp (NTRS) Up 3.35 or 4.38%
SUPERVALU Inc (SVU) Up 0.99 or 4.30%
S&P 10 Worst Performers for the week ending Friday, September 26, 2008:
Washington Mutual Inc (WM) Down -4.09 or -96.24%
Wachovia Corp (WB) Down -8.75 or -46.67%
Genworth Financial Inc (GNW) Down -7.11 or -46.62%
National City Corp (NCC) Down -1.90 or -33.87%
Regions Financial Corp (RF) Down -5.80 or -29.29%
Allegheny Technologies Inc (ATI ) Down -12.13 or -26.96%
Huntington Bancshares Inc (HBAN) Down -3.42 or -26.82%
CIT Group Inc (CIT) Down -2.92 or -26.16%
General Motors Corp (GM) Down -3.32 or -25.38%
CF Industries Holdings Inc (CF) Down -27.65 or -23.15%
Dow Top Performers for the week ending Friday, September 26, 2008:
Microsoft Corp (MSFT) Up 2.24 or 8.90%
JPMorgan Chase and Co (JPM) Up 1.19 or 2.53%
Wal-Mart Stores Inc (WMT) Up 1.01 or 1.69%
Exxon Mobil Corp (XOM) Up 1.04 or 1.31%
Merck & Co Inc (MRK) Up 0.28 or 0.88%
Pfizer Inc (PFE) Up 0.11 or 0.59%
International Business Machines Corp (IBM) Up 0.57 or 0.48%
Intel Corp (INTC) Down -0.03 or -0.16%
The Coca Cola Co (KO) Down -0.24 or -0.46%
Johnson and Johnson (JNJ) Down -0.59 or -0.84%
Dow Worst Performers for the week ending Friday, September 26, 2008:
General Motors Corp (GM) Down -3.32 or -25.38%
E I du Pont de Nemours and Co (DD) Down -6.05 or -12.59%
ALCOA Inc (AA) Down -3.25 or -12.13%
Kraft Foods Inc (KFT) Down -2.04 or -5.83%
United Technologies Corp (UTX) Down -3.44 or -5.35%
General Electric Co (GE ) Down -1.37 or -5.15%
The Walt Disney Co (DIS) Down -1.64 or -4.77%
3M Company (MMM) Down -3.23 or -4.44%
Caterpillar Inc (CAT) Down -2.36 or -3.55%
Verizon Communications (VZ) Down -1.12 or -3.36%
Key Earnings next week:
Monday: Circuit City (CC), Walgreens (WAG)
Tuesday: Pepsi Bottling (PBG)
Wednesday: Micron Technology (MU), Mosaic (MOS)
Thursday: Constellation Brands (STZ), Marriott International (MAR)
Friday: Family Dollar (FDO)
Economic Data next week:
Monday: Personal Income, Personal Spending
Tuesday: Consumer Confidence
Wednesday: ADP Employment, Construction Spending, ISM Manufacturing Index
Thursday: Factory Orders, Jobless Claims (weekly)
Friday: Non Farm Payrolls, Unemployment Rate, ISM Non-Manufacturing