US Market gains well for the week

Financial sector guides market to a strong week that witnesses major sell-off in commodities

It was a holiday shortened week for US Market for the week that ended on Thursday, 20 March, 2008. But the good news about the week was that all the indices posted healthy gains for the week though trading remained immensely volatile. The financial sector dictated market momentum for most part of the week. Other than that, traders parted off with commodities as dollar continued to strengthen after Federal Reserve’s seventy five basis point rate cut last weekend

The Dow Jones Industrial Average gained 410 points for the week. Tech - heavy Nasdaq gained almost 46 points. S&P 500 gained 41 points.

On Monday, 17 March, death of Bear Sterns was the most important news for the market as Federal reserve stepped in helping JP Morgan Chase to buy Bear Sterns at a paltry sum of $2/share. Fed also announced a 25 basis point cut in its discount rate to 3.25% and created a new lending facility to provide financing to participants in securitization markets - its first weekend action in more than 25 years. After being down by almost 200 points at open, the Dow Jones industrial Average ended the day with a gain of 21.16 points.

Tuesday’s momentum was dictated by some good set of earning reports coming from Goldman Sachs and Lehman Brothers. Stocks shot higher on the these reports but dismissing a higher than expected reading in the core Producer Price Index took some steam out of market.

However, at 2.15 E.T, the Federal Open Market Committee (FOMC) announced it is cutting the fed funds rate and discount rates by 75 basis points. That left the fed funds rate at 2.25% and the discount rate at 2.50%. Market’s immediate response was negative but The Dow Jones industrial Average ended the day with a gain of 420 points. The S&P 500 advanced 4.2%, scoring its biggest one-day percentage move since October 2002.

Wednesday’s (19 March, 2008) momentum picked up on a good note following a better than expected earning report from Morgan Stanley. The day also got some good related to Freddie Mac and Fannie Mae. The Office of Federal Housing Enterprise Oversight is allowing the two government sponsored enterprises to purchase more home loans.

But in the final couple of hours of trading, weakness in commodity market pushed the indices back to the wall. Gold, crude oil and other metals witnessed drastic slide in prices as dollar strengthened after rate cut by Federal Reserve. The Dow Jones industrial Average ended the day with a loss of 261 points.

Among other economic reports for the week, Industrial production fell 0.5% in February. This was worse than the expected decline of 0.1%. Also, the New York Empire State Index, a regional manufacturing survey, fell to -22.2 from -11.7. This was worse than the expected reading of -7.4. It marks the lowest Empire reading on record since the survey started in 2001.

February Producer Price Index (PPI) excluding food & energy rose 0.5% month-over-month, which was more than the expected rise of 0.2%. Commerce Department reported that February housing starts came in at an annualized rate of 1.065 million, which beat the expected reading of 995,000. However, building permits were 978,000, which missed the expected reading of 1.020 million.

The strengthening dollar weighed on commodities, with oil sliding to $101.54 per barrel, and gold giving up 3.5% to $912.22 per ounce. For the week, both commodities lost around 8%.