A disastrous week for US Market

Stocks suffer heavy loss for the week as job report disappoints and Intel is downgraded

New year did not take off very smoothly for investors in US Market. Stocks suffered heavy losses during the week when economic reports dominated. They were mixed in nature. Stocks began the week on an extremely shaky note and stocks plunged on first day of the week, which was also the last trading day of FY 2007. But Friday’s (4 January, 2008) weak job report from the Labor Department took maximum steam out of the market and market suffered huge losses for the week ending on Friday, 4 January, 2008.

The Dow Jones Industrial Average lost 565 points for the week. Tech - heavy Nasdaq lost 170 points. S&P 500 lost 67 points.

FY 2007’s star performer, Technology sector bled during the whole week. Percentage wise Nasdaq suffered the maximum losses.

After returning from the New Year break on Wednesday, 2 January, 2008, stocks were pressured due to a surprise contraction in manufacturing activity and surging oil prices, which hit $100 per barrel. Dow ended the day with a huge loss of 220 points. Nasdaq too shed 42 points.

The December Institute of Supply Management (ISM) Index, a national purchasing manager survey, disappointingly dropped to 47.7, compared to November's reading of 50.8. The number also came in short of the consensus estimate of 50.5, and is the lowest level seen since April 2003. Because the number is below 50, it indicated a contraction in manufacturing.

Due to some mildly positive initial claims and factory orders data, the market managed to end flat but mixed on Thursday, 3 January, 2008 with Dow registering a mere gain of 12 points. Nasdaq, however ended in the red.

The Department of Commerce reported that November factory orders rose by 1.5%. Market expected orders to rise by 1%. Also, the Labor Department showed that new claims for unemployment for the week ended 29 December fell to 336,000, from 357,000 in the previous week.

On Friday, 4 January, 2008, Labor Department reported that nonfarm payrolls rose by just 18,000 positions in December, after an upwardly revised 115,000 gain in November. At the same time, the unemployment rate bumped up to 5% from 4.7%. Market had been expecting a 70,000 gain in nonfarm payrolls and a 4.8% unemployment rate.

Dow and Nasdaq ended the day with a huge loss of 256 points and 98 points respectively. A downgrade of Intel by JP Morgan weighed heavily on the technology sector.

Among some positive stories for the week, the minutes from the Federal Reserve's 11 December meeting were released and the same suggested that the central bank sees more interest-rate cuts ahead.

In the automobile sector, Ford, Toyota and General Motors reported lower December sales. Chrysler and Honda Motor reported small gains.

Executive Summary

For the week, indices registered substantial losses. DJIx and S&P 500 closed down by 4.4% and 4.6% respectively. Technology sector was the most affected and Nasdaq went down by 6.3%. Economic reports dominated the week. But Friday’s job report affected the market most.

For the year, Dow, Nasdaq and S&P 500 are down by 3.5%, 5.6% and 3.9% respectively. A downgrade of Intel by JP Morgan weighed heavily on Nasdaq for the week.

It’s tough to say what the primary market drivers of FY 2008 will be. But it is for certain that the US stock market will continue to face a slew of threats - more adjustable mortgage resets, a still tight credit market and the possibility of accelerating inflation.