A sharp turnaround for US Market

Nasdaq witnesses its best weekly gains in almost eight months


It was totally a week for earning reports that dominated the week that ended on Friday, 18 April, 2008. The week ended in a fashion exactly opposite to the way it had ended last week. Better than feared earning reports and mixed data on the economic front took US market substantially higher for the week that ended on Friday, 18 April, 2008.

But half of the week’s gains was due to the huge gain incurred the by the market on Friday itself which was mainly instigated by higher-than-expected first quarter earnings from Google. Other than that, commodities once again reached a sky-high price, with crude oil ended the week up by 6% at $116.9/barrel. Hence, Energy was the best sector to end with gains for the week followed by Technology.

The Dow Jones Industrial Average gained 524 points for the week. Tech - heavy Nasdaq gained 112.7 points. S&P 500 gained 57.5 points. In percentage terms the three indices gained 4.1%, 4.9% and 4.3% respectively.

On Friday, 18 April, Google reported a earnings of $4.84 per share for its most recent quarter, beating estimates by a large margin. During its conference call Google stated that its paid advertising clicks were growing stronger than skeptics were speculating. The Google stock gained 20% on that day. It helped the tech sector outperform the other major economic sectors. Dow won a huge 229 points on that day itself.

Other earnings-related excitements came from Honeywell and Caterpillar on Friday itself. Both companies announced better than expected quarterly profits. That also gave a good boost to Dow and S&P 500 on that day.

With respect to the financial sector, earning reports were better than feared but with investment companies reporting losses one after the other, it was a reminder that business conditions are far from good. Wachovia, Merrill Lynch and Citigroup – all reported loss for the quarter. The only exception was with JP Morgan.

Other major names in the earnings front that hit the headlines during the week were Johnson & Johnson and UPS. While the former beat expectation, the later disappointed. Pfizer reported first quarter earnings which was a nickel short of the consensus estimate.

On the tech front, IBM announced its quarterly earnings beating estimates by a large margin. The company also upped its guidance for the full year. Other than beating earning estimate, Intel gave a reassuring outlook, which helped calm the market’s fears over demand and margins.

Among major economic report of the week, the Bureau of Labor Statistics revealed that producer prices rose 1.1% in March, which was well ahead of the 0.6% consensus estimate. That increase was driven primarily by higher energy and food costs. Excluding those items, producer prices were up just 0.2% in March. The Consumer Price Index (CPI) rose 0.3% and the core CPI rose 0.2%. Both matched expectations, but provided the market with some relief as they were better than feared after producer prices spiked higher.

Also, Housing starts and building permits fell by a larger than expected amount to their lowest levels since 1991. March housing starts plunged nearly 12% and Building permits decreased 5.8%, also falling to the lowest level since 1991.

Executive Summary

For the week, indices registered huge gains. DJIx and S&P 500, each closed up by 4.1% and 4.3% respectively. Nasdaq closed up by 4.9%. Earning reports dominated the week. Commodities once again reached a sky-high price, with crude oil ended the week up by 6% at $116.9/barrel. Hence, Energy was the best sector to end with gains for the week followed by Technology.

Google, IBM and Intel came out with spectacular earning reports for their first quarter beating estimates and upping their guidance. Google stock soared 20% on Friday. Other major companies like J&J, Coco Cola also exceeded expectation. But Pfizer and UPS disappointed. In the financial sector, Wachovia, Merrill Lynch and Citigroup – all reported loss for the quarter. The only exception was with JP Morgan.

For the year, Dow, Nasdaq and S&P 500 are down by 3.1%, 9.4% and 5.3% respectively