US Market ends week on a sour note

Credit and liquidity issues ruled the US Market for the week that ended on Friday, 14 March, 2008. It was a volatile week of trading. There were no major earnings reports and only a handful of economic releases. In the end, the stock market posted a slight loss. News that a major investment bank needed a bailout caused the market to lose enthusiasm.

The Dow Jones Industrial Average gained 57 points for the week. Tech - heavy Nasdaq was practically unchanged. S&P 500 lost 6 points.

On Monday, 10 March, there was a spate of other pessimistic news in the finance sector. Reports indicated that Lehman Brothers will be laying off 5% of its workforce. Also, there were plenty of negative rumors that a major Wall Street firm was facing liquidity issues. In addition, Fitch Ratings took negative ratings action on eight banks, including Washington Mutual. The Dow Jones industrial Average ended the day with a loss of 153 points at 11,740.

The next day, on Tuesday, 11 March, the Dow Jones industrial Average ended the day with a huge gain of 417 points at 12,157. Stocks posted their largest one day percent gain since 2003 on news of a coordinated central bank effort to improve liquidity.

The Federal Reserve announced that it was taking coordinated steps with other central banks to boost liquidity in financial markets. Also, it announced that as per its Term Securities Lending Facility (TSFL), the Fed will lend up to $200 billion of Treasury Securities to primary dealers secured for a term of 28 days, rather than overnight. The borrowers will be able to pledge a variety of collateral ranging from federal agency debt to private AAA rated residential mortgage backed securities.

However, the week ended on a sour note, after the stock market got clipped on news that Bear Stearns will receive financing as needed from JPMorgan Chase and the Federal Reserve Bank of New York. The emergency funding agreement gave Bear a secured loan facility for an initial period of up to 28 days. But Bear would not have been able to utilize the Fed’s new plan, as the auctions do not start until March 27. Dow gave up almost 200 points on Friday, 14 March.

Economic data were mixed during the week although the reports did not have much of an impact on stocks due to credit concerns taking center stage. February retail sales fell 0.6%, which was short of the expected 0.2% rise. On a bright note, an inflation reading was better than expected. February Consumer Price Index (CPI) and CPI excluding food & energy came in flat. This was less than the expected rises of 0.3% and 0.2%, respectively.

Among other major events during the week, gold rose 2.6% and hit an all-time non-inflation adjusted intraday high of $1009.00 per ounce. Crude oil rose 4.7% and hit an all-time intraday high of $111.00 per barrel. Crude’s advance occurred even though the government’s weekly energy report showed stockpiles increased by a much larger than expected amount.