Financial sector weighs on Wall Street

Gains at the end of the week fail to negate market's weekly loss

Though stocks at wall Street managed to eke out some gains during the last couple of day during the week which ended on Friday, 16 January, 2008, indices suffered quite heavy losses for the week. The financial sector led by Citigroup and Bank of America were the main culprits for the weakness in the market. Bothe the companies disclosed about their losses in the latest quarter. More companies, meanwhile, announced job cuts.

There was a lot of economic news of note once again this week. The market reacted to each one of them in an expected negative manner. The earning season also kicked off this week with Alcoa being the first to report its expected disappointing earnings.

The Dow Jones Industrial Average lost a huge 317.96 points (3.7%) for the week to end at 8,281.22. Tech - heavy Nasdaq lost 42.26 points (2.7%) to end at 1,529.33. S&P 500 lost 40.23 points (4.5%) to end at 850.12.

During the week, Bank of America said it lost $1.79 billion in the fourth quarter, excluding the $15 billion loss at Merrill Lynch. The company also reinforced the need for additional governmental aid to the tune of $20 billion for the acquisition of Merrill Lynch. Citigroup also reported a huge $8.3 billion fourth quarter loss and also announced that it would be splitting into two units as it attempts to downsize its operations. Top of it came worse than expected earning report from JP Morgan Chase.

All these factors once again reinforced the concerns about deteriorating credit quality and the seemingly unending need by the banks to raise capital to plug the gaping holes created by losses and write downs on bad investments.

Economic news that checked in added more salt to the already injured Wall Street. December retail sales declined 2.7% and fell for the sixth straight month. Industrial production in the fourth quarter declined at an 11.5% annual rate. The trade deficit narrowed sharply to $40.4 billion with a $25 bln drop in imports and an $8.7 bln drop in exports reflecting a sharp contraction in overall global trade.

The last week also witnessed weekly initial claims jumping 54,000 to 524,000. Although there was a 115,000 drop in continued claims, that improvement was quickly attributed to people having exhausted their jobless benefits.

Both the PPI and CPI reports checked in a bit better than expected. But once again, reports on the earnings front continued to disappoint. Alcoa came up short of lowered estimates and Intel reported a 90% drop in fourth quarter net income. Others like NVIDIA, Motorola and Genentech issued sales and/or earnings warnings.

On Friday, 16 January, 2009, after being 45 points lower earlier in the day, The Dow Jones Industrial Average ended higher by 68.7 points at 8,281.22, the Nasdaq closed higher by 17.5 points at 1,529.33 and the S&P 500 closed higher by 6.4 points at 850.12.

Bank of America axed its dividend and posted its first loss since 1991 after the government said it would invest an additional $20 billion in the company taking help from Federal Reserve for its acquisition of Merrill Lynch.

On Friday, crude-oil futures for light sweet crude for February delivery closed at $36.51/barrel (higher by $1.11 or 3.1%) on the New York Mercantile Exchange. Earlier it dropped to a low of $34.18. For the week, crude prices shed 10.6%.

Executive Summary

For the week, indices registered good losses at Wall Street. The financial sector led by Citigroup and Bank of America were the main culprits for the weakness in the market. Bothe the companies disclosed about their losses in the latest quarter. More companies, meanwhile, announced job cuts.

In percentage terms, Dow lost 3.7, Nasdaq lost 2.7% and S&P 500 lost 4.5% during the week.

For the year 2009, Dow, Nasdaq and S&P 500 are down by 5.6%, 3% and 5.9% respectively.