Financial sector weighs too heavily on US Market

All the ten sectors end in the red for the week overlooking encouraging economic data

US Market ended the week on Friday, 20 June with huge losses. The financial sector was the main one that was to be blamed. Quarterly earnings from Lehman Brothers, Goldman Sachs and Morgan Stanley were poor compared to last year though they were better when compared to Wall Street's expectations. Although financials were the driving force behind the negative sentiment this week, all ten economic sectors posted a decline. Economic data were largely overlooked as market participants focused on corporate news, although there were several notable releases.

The Dow Jones Industrial Average lost 465 points for the week to end at 11,842.69. Tech - heavy Nasdaq lost 48.4 points at 2,406.09. S&P 500 shed 42.1 points to end at 1,317.93. In percentage terms, Dow, S&P 500 and Nasdaq lost 3.8%, 3.1% and 2% respectively. Financials tumbled almost 5% for the week and is at its lowest level in five years.

Earlier during the week, Goldman's earnings blew away forecasts, and Morgan Stanley beat estimates. Lehman's loss of $2.8 billion matched its preannouncement. But the indices sank once Goldman warned that U.S. banks may need to raise $65 billion in fresh capital in response to the subprime fallout. The very following day regional bank Fifth Third Bank said it is going to raise $1 billion in fresh capital, sell $1 billion in assets and cut is dividend by 66%

Also, Citigroup compounded the financial sector's decline after announcing that it will face another barrage of write-downs in its second quarter, although the total amount should be less than its $19 billion first quarter write-down due decreased subprime exposure.

Again, in the same bleeding sector, Moody's cut its AAA credit rating and put a negative outlook on the insurance units of both Ambac Financial and MBIA.

Among interesting corporate news, Ford and General Motors both suffered major declines after Ford said it will be difficult for the company to "break-even" in 2009, and Standard & Poor's put a negative credit rating watch on both GM and Ford.

Among earning reports for the week, FedEx reported quarterly earnings that missed the consensus estimate. The company issued fiscal year 2009 earnings guidance well below expectations, citing sluggish U.S. demand and record energy prices. Market was also disappointed with earnings from retailers Best Buy and Circuit City.

Among major economic reports, May Producer Price Index (PPI) rose by a higher-than-expected amount due to the spike in energy prices. However, core PPI - which excludes food and energy was in-line with estimates.

The housing industry still continued to give dim news after it reported that housing starts fell 3.3% from the prior month and building permits dipped 1.3%.

The focal point next week will be the Federal Reserve Open Market Committee policy announcement on Wednesday, 25 June, 2008. The market expects the fed funds rate to remain unchanged at 2%.