Good weekly gains at Wall Street

October does not turn out to be that bad as investors had perhaps expected

October continues to be the worst market in US stock market history as always but this year perhaps it was not so bad. The worst month till date this year was booked by September, 2008. In October, stocks got some strength in the final days of the month. Wall Street managed to register some decent gains for the week that ended on Friday, 31 October, 2008 after weeks of incurring losses.

Though earning reports were better than expected in most cases, it was the cautious guidance coming from most companies that played the spoilsport. Economic reports were mixed in nature but most pointed out their fingers towards a recession that has already started gripping the US economy.

Both the earnings results and economic data this week were fairly unimpressive. But despite that, the Dow Jones Industrial Average gained 946 points (11.3%) for the week to end at 9,325. Tech - heavy Nasdaq gained 168.9 points (10.9%) at 1,720.95. S&P 500 gained 91.9 points (10.5%) to end at 968.

Amid a period of record volatility, the market managed to pare its losses and ended the month of October down only 17%.

On Friday, 31 October, 2008, the last day of the month, the Dow Jones Industrial Average ended the day up by 144 points, to 9,325. The Nasdaq Composite Index, finished higher by 22 points at 1,720. S&P 500 finished higher by 14.68 points at 968.75.

The FOMC cut the fed funds rate by 50 basis points to 1% during the week, which was widely expected. The discount rate was cut 50 basis points to 1.25%. The action was unanimously approved, with the Fed citing increased economic risks and improving inflation expectations.

As per Fed, the pace of economic activity has "markedly" slowed as consumer expenditures declined, while inflation pressures are expected to moderate due to the drop in commodity prices and weaker economic prospects. The FOMC believes that over time this action, along with the Fed's other measures, will help promote moderate economic growth.

Separately, the Fed established temporary currency swap lines with the central banks of Brazil, Mexico, South Korea and Singapore. The move is meant to improve liquidity and complement the Fed's current swap lines with 10 other central banks.

The biggest piece of economic news during the week was that real GDP figure for the third quarter declined 0.3% on an annualized basis in the third quarter as consumer spending declined at the fastest rate in 28 years. Market was expecting a 0.5% drop rate. The 0.3% decline in real gross domestic product was the largest since the end of the last recession in late 2001. The economy grew at a 2.8% pace in the second quarter.

The GDP data followed a report from the Conference Board that consumer confidence hit a record low in September and accompanied an initial jobless claims report that showed the 4-week moving average at a recession-like level of 475,500.

The Chicago Purchasing Managers Index didn't do anything to help improve the economic outlook. It fell from 56.7 in September to 37.8 in October. A number below 50 is considered to be a sign of contraction.

New home sales, up 2.7% in September, provided some good news, as did the report that orders for durable goods increased 0.8% in September.

Among earning reports for the week, Procter & Gamble reported a 9% rise in first-quarter profit but also lowered the bottom end of its earnings forecast for fiscal 2009. Whirlpool cut its 2008 forecast and announced it was cutting 5,000 jobs.

Integrated oil major Exxon Mobil posted better than expected result, but with crude prices slipping, future earnings was an important question. On the other hand, Colgate-Palmolive also saw strong numbers, but it expects double-digit earnings growth to continue.

Also, during the week, Chevron reported better-than-expected third quarter results. Its net income more than doubled, thanks largely to record high oil prices. Internet search companies Yahoo! and Google posted mixed results after reports suggested a business deal between the pair is looking unlikely due to regulatory requirements.

Crude prices ended with little gains on Friday, 31 October, 2008 after trading lower for almost the entire day. The firm dollar and the current global crisis were the main reasons behind the subdued crude prices. Friday’s weak economic data also added to this. On Friday, crude-oil futures for light sweet crude for December delivery closed at $67.81/barrel (higher by $1.85 or 2.8%) on the New York Mercantile Exchange. Prices earlier touched a low of $63.12. For the week, prices rose by 5.7%. On a yearly basis, crude price is lower by 31%. For this year in 2008, crude prices have dropped 29.4%.

For the year, Dow, Nasdaq and S&P 500 are down by 29.7%, 35% and 34% respectively.

Tuesday's presidential election in US will be one of the major determiners as to how Wall Street will behave in the next few months. Other than that, pressing economic questions, reports due on manufacturing, the service sector and, most important, employment, could determine whether the market stays above its current levels or plunges to new lows.