Wall Street ekes out gains for the week

After a wild week, indices look forward for a steady direction

Extreme volatility was the main characteristic of Wall Street for the week that ended on Friday, 17 October, 2008. The week witnessed immense injection of liquidity in the credit market across the globe. In the US Market, the earning reports started pouring in. Options expired on Friday, which likely induced volatility and added volume. But nevertheless, the indices managed to finish the week with gains surprisingly following the week that had witnessed the worst weekly decline in Dow’s history.

Both the earnings results and economic data this week were fairly unimpressive. But signs of improvement in the credit market aided in the buying efforts. The Dow Jones Industrial Average gained 401 points for the week to end at 8,852. Tech - heavy Nasdaq gained 61 points at 1,711. S&P 500 gained 41 points to end at 940.

Morgan Stanley completed a deal during the week to receive a $9 billion capital injection from Japanese bank Mitsubishi UFJ. Other than that, the other central bank plans to provide as much dollar liquidity as needed for short-term funding markets, and news that several European countries were guaranteeing interbank lending helped market open on a strong note earlier during the week.

In addition to the above, speculation that the U.S. Treasury would be making a direct capital injection of as much as $250 billion in U.S. banks and that the FDIC would guarantee deposits in non-interest bearing deposit accounts also fueled the buying efforts.

But the market stumbled on Tuesday, 14 October, 2008 on some profit taking activity and lingering concerns about the economic outlook. The economic concerns dominated the market on Wednesday, 15 October, 2008.

The Commerce Department reported on Wednesday, 15 October, that U.S. retail sales fell 1.2% in September, 2008, the worst drop in three years and the third decline in a row. It just sent another signal that the US economy has sunk into a recession. The 1.2% decline came against a forecast figure of 0.8% decline.

But stocks extended their declines in the afternoon as Fed Chairman Bernanke spoke at the Economic Club of New York. In Bernanke's text, he said that during past economic crises the government took too long to act, but during the current turmoil the government acted swiftly, which will help to restore market functioning quicker. Despite the swift action, Bernanke noted that credit markets "will take some time to unfreeze" and the economic recovery "will not happen right away."

Financial and technology companies led the earning reports this week. Citigroup, JPMorgan Chase, Wells Fargo, Merrill Lynch, Johnson & Johnson, PepsiCo, Intel, IBM and Google led the headliners. Third quarter results themselves were largely mixed.

On Friday, 17 October, 2008, the Dow ended the day down by 127 points, to 8,852. The Nasdaq Composite Index, finished lower by 6 points at 1,711. S&P 500 finished lower by 6 points at 940. On that day, Honeywell announced earning report that beat expectations. Other that in that, in the tech front, both Google and IBM announced upbeat earnings per share results for the latest quarter.

The finance sector continued to be bogged down with news of losses from Citigroup and Merrill Lynch earlier Friday morning. The two companies continued to be hit by asset write-downs or other impairment charges.

There were a couple of economic reports that hit the wires on Friday. The Commerce Department had reported that construction of new homes fell to the second-lowest level in 50 years last month, as home builders sought to reduce the number of unsold inventories in an elusive quest to find the bottom of the historic housing collapse. Housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991 and just 19,000 above the record low.

The report also stated that starts of single-family homes tumbled 12% to an annual rate of 544,000, the lowest since February 1982 and the fourth-lowest ever. Housing starts were also revised lower in July and August. Starts in August were revised to 872,000, down from 895,000. Building permits, which are less volatile than the starts data, fell 8.3% to 786,000 last month, a 27-year low. Permits for single-family houses dropped 3.8% to 532,000, the lowest in 26 years.

In a separate report, University of Michigan/Reuters index released on Friday, 17 October, 2008, showed that U.S. consumer sentiment plunged in October. The index fell to 57.5 in October, compared with a reading of 70.3 in late September. Market had been expecting an October result of 64.5.

Oil prices dropped below $70 per barrel at one juncture during the week. The drop in oil prices followed a weak industrial production report and reflected underlying concerns about the prospect of a global recession. At the close of the week, crude prices closed at $72. OPEC is slated to meet on 24 October to discuss oil prices. It is expected that the cartel, having seen prices plummet more than 50% from the all-time high reached in July, will announce a production cut.