US markets to fall to 11 year low

Indices drop to lowest levels in eleven years

Wall Street continued with its streak of loss making weeks even for the week that ended on Friday, 27 February, 2009. Though the week kicked off on a relatively strong note with some modest support from the financial sector, couple of economic reports and developments in Wall Street in the banking sector weighed on investor sentiments during the course of the week. Big companies continued to slash their dividends to curtail costs and unemployment continued to remain at highest levels in three decades.

The Dow Jones Industrial Average lost 302 points (4.1%) for the week to end at 7,062. Tech - heavy Nasdaq lost 63 (4.4%) to end at 1,377. S&P 500 lost 35 (4.5%) to end at 735.

On Monday, 23 February, 2009, amid news of nationalization of US banks, stocks did witness a modest rally led by the financial sector. But the rally fizzled out in the second half but once again rebounded on next day, Tuesday, 24 February, 2009.

On Tuesday, Fed Chairman Bernanke finished his semiannual testimony in front of the Senate Banking Committee. The testimony continued to dominate financial news coverage. Bernanke noted in his remarks that measures taken by the Federal Reserve, other U.S. government entities, and foreign governments have helped restore a degree of stability to some financial markets. However, he noted that first banks have to be stabilized and then only overall development despite a range of lower borrowing costs, significant stresses persist in many markets.

JP Morgan and GE were two big names on Wall Street that announced dividend cuts during the week. General Electric cut its long-standing dividend to $0.10 from $0.31 to save nearly $8.9 bln a year. JPMorgan reduced its dividend to $0.05 from $0.38 to retain $5 billion in additional common equity per year. But the company said that its first quarter performance to date has been "solidly profitable'.

In the US market on Friday, 27 February, 2009, stocks ended in the red. Market started the day in the red and limped in the same for the entire day. The Dow Jones Industrial Average ended lower by 119 points at 7,062, the Nasdaq closed lower by 13.7 points at 1,377 and the S&P 500 closed lower by 17.7 points at 735.

Stocks started losing steam on Friday after reports that Citigroup has decided to offer common shares for up to $27.5 billion in existing preferred equity at a conversion price of $3.25 per share. The government will match this exchange to a maximum of $25 billion face value of its preferred stock. The transaction is expected to increase Citigroup's tangible common equity, but it also gives the government a 36% stake in the company.

In the earnings arena, retailers Gap and Kohls reported worse than expected earnings. Dell's results were at par with other tech companies.

Among major economic reports scheduled for the day, fourth quarter GDP was revised lower to reflect an annual rate of -6.2% versus a previously estimated -3.8%. The decrease in fourth quarter activity primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. The report once again questioned the demand for oil in the coming months. That marked the steepest drop in GDP since 1982.

On Friday, crude-oil futures for light sweet crude for April delivery closed at $44.76/barrel (lower by $0.46 or 1%) on the New York Mercantile Exchange. For the week, crude ended higher by 12%. For the month of February, crude prices ended higher by 1.5%.

Among major economic reports for the week, durable Goods Orders ex-transportation dropped a larger-than-expected 2.5% in January, more than the -2.2% consensus estimate. The prior month's figure was revised sharply lower to -5.5% from -3.6%. In the housing sector, new home sales dropped to an annualized rate of 309,000 units in January. That was below the 324,000 consensus estimate, 48.2% below the year-ago level and also marked a new low for records dating back to 1963.

For the year 2009, Dow, Nasdaq and S&P 500 are down by 19.5%, 12.6% and 18.6% respectively.