Tension persists in US Market as new home sales drop 9% in November
US stocks ended lower for the week that ended on Friday, 28 December, 2007. The week witnessed low volumes of trading as evidenced by the ongoing holiday season. Economic reports, mainly the ones that showed that housing and credit market problems still persist, took some steam out of the market.
Disappointing news came on the retail front too. In the financial sector, Merrill Lynch tried giving some good news to the market. But Goldman Sachs pointed out that more pain is there in the credit market and the company expected more write downs from some top investment firms. The technology sector got some good boost from Apple whose shares crossed the $200 mark for the first time ever.
The assassination of Pakistan's former prime minister and opposition leader Benazir Bhutto also weighed on the market during the last two days.
The Dow Jones Industrial Average lost 85 points for the week. Tech - heavy Nasdaq lost 17 points. S&P 500 lost 6 points.
Merrill Lynch announced that it will receive up to $6.2 billion from equity sales to the Singapore government wealth fund Temasek Holdings and to Davis Selected Advisors. But at the same time, Goldman Sachs said that Citigroup might cut its dividend by 40% and may write-down $18.7 billion in debt, which is higher than the previous estimate of $11 billion. Goldman also said it expects a larger write-down at JPMorgan Chase and Merrill Lynch. So, financial sector was again back in a mess.
Target warned its December same-store sales will come up short of expectations. The company said it now expects sales to be down 1% to up 1%, well below the previous forecast that called for sales to rise 3% to 5%.
Dow lost a good 192 points on Thursday, 27 December, 2008 after Commerce Department came out with some weak durable goods report. The Commerce Department reported that durable goods new orders rose a disappointing 0.1% in November. That was below an expected gain of 2.2%, and follows a revised 0.4% decline in October as business investment trends remain sluggish.
Stocks opened higher on Friday, 28 December, 2007 but trended lower after a government report confirmed the ongoing problems in the housing sector, which continues to weigh on overall economic activity. According to a report from the Commerce Department, new home sales slipped 9% in November from with builders still grappling with a glut of inventory and slowing demand. Market closed mixed with Nasdaq registering marginal gains.
Among other economic reports during the week, the Labor Dept. showed initial claims for the week ended 22 December were essentially stable at 349,000. Another report showed that consumer confidence increased to 88.6 in December from a revised 87.8 in November.
Also, the S&P/Case-Shiller Home Price Index indicated October home prices dropped a more than expected 6.1% on a y-o-y basis. Market expected a drop of 5.7%.
On the M&A front, Warren Buffet's Berkshire Hathaway agreed to buy the reinsurance business unit from Dutch financial services company ING Group NV for approximately $440 million. Also, earlier during the week, Alcoa finally agreed to sell its packaging and consumer businesses to New Zealand-based Rank Group for $2.7 billion. The deal is expected to close by the end of the first quarter.
Executive Summary
For the week, indices registered modest losses. DJIx and S&P 500 closed down by 0.7% and 0.4% respectively. Nasdaq too shed 0.7%. Volume was relatively quite lighter due to the ongoing Holiday season. Economic reports, mainly the ones that showed that housing and credit market problems still persist, took some steam out of the market.
The assassination of Pakistan's former prime minister and opposition leader Benazir Bhutto also weighed on the market during the last two days.
For the year, Dow is up by 7.2%, Nasdaq is up by 10.7% and S&P 500 is up by 4.2%.