Indices drop more than 1% in the holiday shortened week as investors worry about consumer spending
It was a holiday shortened week in the US Market. In recognition of the Thanksgiving holiday, the markets were closed on Thursday, 23 November. Trading took place for half day on Friday, 24 November and market closed at 1.00 p.m E.T. Though US stocks registered good gains on that day, the indices slipped more than 1% for the week ending on Friday, 23 November, 2007.
Concerns about overall economy weighed on investor sentiment during the whole week as disappointing earning reports came from a couple of retailers. Traders continued to worry about consumer spending in coming months. Persisting weakness in the housing market, further credit write-downs, and rising oil prices added further woes and worries.
The Dow Jones Industrial Average lost 196 points for the week. Tech - heavy Nasdaq lost 40 points. S&P 500 lost 18 points.
Market started off on a shaky note on Monday, 19 November, 2007 after the financial sector came under pressure once Citigroup was downgraded to sell from neutral by Goldman Sachs. The investment banker said that it foresees up to $15 billion in write-downs from collateralized debt obligations during the next two quarters. Dow shed 218 points on that day. General Motors added further fuel to the downslide after the stocks slipped by 8.5% on reports that GMAC Financial Services, the old General Motors Acceptance, is seeing more delinquencies among its auto loans.
On Tuesday, 20 November, Freddie Mac shares dropped by almost 30% today after the U.S. mortgage lender reported a $2 billion quarterly loss and said it might slash its fourth-quarter dividend. Fellow mortgage investor Fannie Mae also came under selling pressure and the news weighed on the overall financials sector. After quite a few zig-zag rides, Dow managed to gain 51 points.
On Wednesday, 21 November, the financial sector once again came under pressure and Dow gave up another 211 points after Lehman Brothers said investors should brace for more write-downs from AIG.
But on Friday, 23 November, stocks rebounded sharply in a bargain hunting trade that was led by financial and retail stocks. Dow and Nasdaq added 181 points and 34 points respectively to their kitty.
On the earnings front, H-P came out with its quarterly result beating market expectations. The company’s fiscal-fourth-quarter profit rose 28% from a year ago. The company also raised guidance for the current quarter.
But retailers disappointed. Home retailer, Lowe's posted a lower third quarter profit that was slightly ahead of analysts' expectations, but the company lowered its outlook for the current period in anticipation of further weakness in housing. On the other hand, Target reported earnings missing expectations also led to some negative sentiments among traders.
Among major economic news hitting the market during the week, new claims for unemployment for the week ended 16 November fell to 330,000 from 341,000 the week before. The November University of Michigan Consumer Sentiment Index was revised to 76.1 from 75.0. The other report, October Leading Indicators, fell to -0.5%, compared to last month's reading of 0.3%. Economists expected the reading to come in at -0.3%.
Other than the above, the minutes from the 31 October meeting were released on Tuesday, 20 November. The same prompted some mixed interpretations. It included the downgrade of the Fed's GDP forecast for 2008 to 1.8% -2.5% from 2.5%-2.75%. The minutes noted that the risks to inflation balance the risks to the economy and discussed the possibility of leaving rates unchanged.
Executive Summary
For the week, indices registered losses. DJIx closed down by 1.5% and S&P 500 closed down by 1.2%. Nasdaq too shed 1.5%. Disappointing earning reports and guidance from a couple of retailers, Target and Lowes, sent trader sentiments to new lows.
Good news from H-P regarding its earnings report failed to keep up the indices in good spirit. Crude prices continued to stay at high levels while dollar continued to slip against most of its rival currencies.
For the year, Dow is up by 42%, Nasdaq is up by 7.5% and S&P 500 is up by 1.6%.