All sorts of recession warding plans come into play in the US Market
US Market showed some erratic movements during the week that ended on Friday, 25 January, 2008. Ultimately, the Dow Industrials and the S&P 500 managed to dodge losses after weeks and closed marginally higher. Nasdaq, however failed to buck the trend. Federal Reserve’s sudden decision to slash benchmark interest rates by 75 basis points to 3.5% dominated the headlines during the week. Other than that, market focused on earning reports.
Earlier during the week, technology heavyweights Motorola and Apple both issued disappointing guidance and this led market sentiments lower. Even on the last day of the week, Friday, 25 January, 2008, the market opened higher led by a strong earnings report and reassuring outlook from software giant Microsoft but retraced its gains to finish noticeably lower.
The Dow Jones Industrial Average gained 107 points for the week. Tech - heavy Nasdaq lost 14 points. S&P 500 gained 14 points.
U.S. markets were closed on Monday, 21 January, 2008 in recognition of the leader Martin Luther King Jr., markets worldwide plunged on spreading fears that a U.S. recession and tighter credit will hurt the global economy.
On Tuesday, 22 January, before the opening bell, at 08:20 ET it was announced that the Federal Open Market Committee (FOMC) approved a 75 basis point intermeeting cut in the fed funds rate to 3.50%. The Board of Governors also approved a 75 basis point cut in the discount rate to 4.00%. US Market responded by plunging deep but recovering partly going at the end. Dow plummeted by almost 465 points in the morning session. But then, with the help of bluechips, stocks managed to make a modest comeback. Federal Reserve’s sudden decision surprised all and was made to ward of recession in US in the coming months.
In affirmation of this decision, the FOMC said it took this action "in view of a weakening of the economic outlook and increasing downside risks to growth." The statement added that, "Appreciable downside risks to growth remain." The latter statement added further hopes that the market is expecting there will be another substantive rate cut at the 29-30 January FOMC meeting.
Following five straight down days, U.S. stocks staged a striking comeback on Wednesday, 23 January and on Thursday, 24 January. News that troubled bond insurers, might benefit from a rescue plan of some sort fuelled a decent rally on Wall Street on Wednesday.
On Thursday, stocks managed to extend their gains after new jobless claims data showed that businesses are not entering into recessionary mode. Also, a stimulus package from the Bush administration to ward off recession in US cheered investors and stocks rallied in the post lunch hours.
On Friday, 25 January, indices ended in the red as traders took some money off the table. Dow ended lower by more than 170 points.
Among other important earning reports during the week, Honeywell International and fellow Dow component Caterpillar both reported strong earnings results for the fourth quarter and offered encouraging outlook. eBay reported fourth quarter results that beat analysts' expectations, but warned about its profit outlook. Bank of America reported that fourth quarter net income dropped 95%.
On the economic front during the week, December existing home sales came in at a worse than expected. December existing home sales was reported at 4.89 million. This was short of the consensus estimate of 4.95 million. Existing sales are down 2.2% compared to last month's reading of 5 million. The median sale price of an existing home is down 6% against last year.
Also, weekly jobless claims came in at 301,000, lower than the expected reading of 320,000. The good part was that the figure is less than the typical recessionary levels of over 450,000
Executive Summary
For the week, indices ended mixed. DJIx and S&P 500 closed up by 0.9% and 0.4% respectively. Nasdaq shed 0.6%.
US stocks tried to regain some ground during the week as Fed slashed interest rates by 75 bps. Market showed some erratic movement while reacting to this week, but at the end showed some gratitude. Some tech heavy names, Apple and Motorola dampened investor sentiments during the week. But recession worries continued to haunt the market. Even good guidance and earnings report from Microsoft failed to chher sentiment.
All sorts of recession warding plans are rightly in play in the US Market currently. For the year, Dow, Nasdaq and S&P 500 are down by 8%, 12.3% and 9.4% respectively.