US Market falters

A new high crude price everyday and loss from AIG pushes market into the red

The last week that ended on Friday, 09 May, 2008 was mainly dominated by the crude oil, which marked new high for itself almost every day of the week. Other than that, there was a couple of faltering news in the financial sector. But indices ended week with sufficient losses. With the spike in oil prices and the jump in consumer credit, concerns persisted about the state of the consumer. However, the April same-store sales was the only major economic report for the week and the same was better than expected.

The Dow Jones Industrial Average lost 313 points for the week. Tech - heavy Nasdaq lost 32 points. S&P 500 lost 25.6 points. In percentage terms the three indices lost 2.4%, 1.2% and 1.8% respectively.

Oil dominated the headlines throughout the week with crude futures closing at new record highs each day. The final settlement of $126.13 per barrel marked an 8.5% gain for the week that moves was underpinned by weakness in the dollar and supply concerns.

High crude price also led FedEx issue an earnings warning late Friday that was pinned on rising fuel costs.

Citigroup also announced on Friday, 09 May that it would be pursuing a plan to sell $400 billion in noncore assets over the next two to three years. The same once again exposed the ongoing challenges that continue to confront financial companies.

A spate of ugly earnings reports came from Fannie Mae, UBS and Dow component American International Group (AIG). The latter company reported a $7.8 billion net loss for its first quarter and also revealed that it intends to raise $12.5 billion in new capital.

On Thursday, several key retailers reported positive same-store sales results for April. Wal-Mart reported an increase of 3.2%, excluding fuel sales. Costco announced 8% growth. Target announced growth of 3.1%, though the results were slightly below what the company planned.

Wholesale inventories for March declined 0.1%, which is below the 0.5% growth that economists anticipated. Last month's reading was revised lower to 0.9% growth from an initial reading of 1.1% growth.

Among major earning reports for the week, Dow component Disney for its part demonstrated this week that it still has ample earnings power. The entertainment giant reported a 35% increase in fiscal second quarter earnings per share on growth in each of its business segments. Cisco was the other heavyweight that reported earnings this week. It posted a 12% increase in fiscal third quarter earnings per share and reaffirmed its long-term growth targets.

Executive Summary

For the week, indices registered substantial losses. DJIx and S&P 500, each closed down by 2.4% and 1.8% respectively. Nasdaq closed down by 1.2%. The week was mainly dominated by the crude oil, which marked new high for itself almost every day of the week.

A spate of ugly earnings reports came from Fannie Mae, UBS and Dow component American International Group (AIG).

For the year, Dow, Nasdaq and S&P 500 are down by 3.9%, 7.8% and 5.5% respectively. Next week the Retail Sales report for April will garner maximum attention.