For the week ending Friday, October 3, 2008, the major U.S. Indices declined steeply on continued uncertainties over the financial bailout / rescue plan, concerns in the credit markets and more economic deterioration.
- On Monday, stocks suffered massive sell-offs as the Dow and S&P posted their largest point declines in history, both shedding 778 and 104 points respectively. The NASDAQ Composite also closed down 199 points, its biggest one-day point decline since 5/23/00. All three major indices fell more than 7.3% for the week. The last time all 3 indices were down more than 7.3% in the same week was on 10/23/1987.
- The NASDAQ had the worst weekly performance amongst the three major indices, losing 10.81%, its biggest weekly drop since 11/10/2000. The S&P fell 9.38% for the week, marking the biggest weekly decline since 4/14/2000.
- The CBOE Volatility Index , soared to 20-year highs as it settled at 46.72 on Monday, its highest level since 1/8/1988.
- The Euro had its biggest weekly decline ever against the dollar, falling 5.5% as of 4PM EST.
- The Reuters/Jefferies CRB Index (.CRB) the price gauge of major commodities had its worst weekly decline in history (data tracked back to 1956), dropping 10.4% for the week. Prior to today, the biggest weekly percentage decline was on 3/21/08 when it fell 8.32%.
Next Week's Highlights: Earnings season begins - The markets will digest earning reports from major companies including Alcoa, Yum! Brands, Costco, Monsanto, Chevron, and General Electric. Federal Reserve Chairman Bernanke will speak at the National Association for Business Economics and FOMC Minutes will be released on Tuesday. Additional economic data that may also weigh on stock market include Pending Home Sales, International Trade, and Consumer Credit.
M&A, Deals, Corp Actions:
- Financial M&A intensified as Wells Fargo agreed to acquire Wachovia for $15.1 billion, superceding a government aided deal in which Citigroup attempted to buy Wachovia’s banking operations for $2.2 billion. Prior to the Wells Fargo announcement, Citigroup had proposed to buy a fraction of the firm with support from the Federal Deposit Insurance Corporation (FDIC), for which Citigroup agreed to give the FDIC a $12 billion stake in the form of preferred shares and warrants.
**Wells Fargo’s buy-out values Wachovia’s stock at $7/share, an 80% premium over its Thursday's closing price of $3.91. Shares of Wachovia rallied on Friday, but tumbled 38% for the week, while Wells Fargo and Citigroup finished down shares fell 7.37% and 8.93% respectively.
- Berkshire Hathaway’s Warren Buffett agreed to purchase $3 billion in GeneralElectric’s preferred stock, his second capital investment in financials in two weeks, after last week’s $5 billion deal for Goldman Sachs preferred shares.
**GE’s stock fell to a 52-week low on Wednesday at $21.65/share after the company also offered $12 billion in common stock in order to raise fresh capital amidst the continued credit market turmoil. Shares of GE dropped 14.6% for the week.
- Biotech giant Imclone Systems received an acquisition offer from Eli Lilly for ~$6.1 billion, or $70 / share, after declining countless offers from its small stakeholder Bristol-Myers Squibb. The latest unsolicited offer by Bristol-Myers included a purchase price of $62/share. Imclone shares edged higher 2.5% for the week on the possible merger.
- GameStop the world’s largest video game retailer announced it will acquire French leading game retailer Micromania for $700 million, seeking market share expansion in the France, as it currently operates 5,889 stores worldwide, excluding the French virtual game market. Shares of Gamestop had mild reaction to merger plans, as it slightly dropped 2.43% for the week.
- Sprint Nextel, has found potential private equity buyers for its Nextel business, including Cerberus Capital Management and NII Holdings, a digital wireless communication services company focused on Latin American markets, according to the Wall Street Journal. Sprint shares were down 17.8% for the week.
Other Market Moving News:
- Insurers were hit with massive sell-offs mid-week on the news that MetLife, Hartford Financial, Prudential could possibly face downgrades by rating agencies on exposure to bad debt that could lead to additional write-downs and erode firms' profits. Out of the three mentioned, Hartford’s stock experienced the worst weekly decline, sinking 51.6%, as MetLife and Prudential dropped 21.7% & 24% respectively.
- Regional Banks stocks tumbled on Monday after the House of Representatives rejected Congress’ $700 billion bailout package. Panic spread to smaller banks such as SovereignBank, KeyCorp, and National City Corp after investors feared that smaller banking entities could be potential victims of the credit crunch, despite the smaller banks’ reassurance of being well capitalized.
**National City’s stock fell to an all-time low of $1.25/share on Monday while Sovereign Bank fell to a 52-week low of $2.20/shares. The two recovered some of their losses but still shed 5.4% & 30.2%, respectively for the week.
- The Securities and Exchange Commission (SEC) extended its ban on short-selling which on more than 900+ financial companies after the original ban reached its expiration date on October 2. The SEC added new terms stating that the temporary halt on shorting practices will continue for 3 days after Congress passes the Senate & Congress approved legislation on $700 billion financial rescue package, and gave the ban a second deadline as of October 17th
- Home builder stocks fell on continued declines in housing prices. The S&P/Case-Shiller Index, the gauge of U.S home prices in 10-major metropolitan areas, experienced a record drop of 17.5% in July from the same period the previous year. The 10-major cities home price index which fell 21.1% below its market peak two years ago, sent shares of homebuilder Pulte Homes and DR Horton down by more than 19% for the week, while Hovnanian lost 13%.