Wall Street shows some signs of confidence

Indices post their largest weekly gains in months

US stocks were quick enough in responding to some announcements made in the Wall Street last week and the three major indices witnessed their largest weekly gains in quite a few months for the week that ended on Friday, 13 March, 2009. Dow, Nasdaq and S&P 500 – all gaining 9% to 10% in a week, is something, investors have stopped expecting in recent times.

All the major announcements during the week were related to banks. Banks (Citigroup, Banc of America and JP Morgan Chase) being profitable in US till date in 2009 also a word from Citigroup that it will not require additional funds from US government this year gave investors some reason to breathe a sigh of relief. Other than these, reinstitution of the uptick rule and suspension of mark-to-market accounting were the other market drivers.

During the week, investor Warren Buffet said that he is not sure about the US economy in the short term. But at the same time he said that he remained confident about the long term potential of US.

The Dow Jones Industrial Average gained 598 points (9%) for the week to end at 7223.98. Tech - heavy Nasdaq gained 137 (10.6%) to end at 1,431.5. S&P 500 gained 73.2 (10.7%) to end at 756.55.

Strength in financial sector followed by consumer discretionary, industrials and materials sector helped the indices post huge gains for the week which mainly witnessed two days of good rally – one on Tuesday, 10 March, 2009 and Thursday, 12 March, 2009. the Dow gained 380 points and 240 points respectively on these two days. On Tuesday, Citigroup Chairman, Vikram Pandit said that the bank has earned profits in the first two months of 2009. On Thursday, BofA Chairman followed suit.

there was somme good news in the economic front also, mainly the retail sales data. The Commerce Department reported during the week that U.S. retail sales began the year 2009 much stronger than expected. It came after a disastrous holiday shopping season in 2008. Retail sales dropped 0.1% on a seasonally adjusted basis in February, better than the 0.4% decline expected. More importantly, January's sales gain was revised much higher, to a 1.8% growth rate from the 1% increase estimated a month ago.

Retail sales are down 8.6% in the past year and had declined for a record six straight months before January's surprising gain. Sales had plunged 3.1% in December. The data also acted as some sort of market mover during the week.

On Friday, 13 March, 2009, stocks were a bit shaky earlier during the day but then showed solid gains in the second half. The Dow Jones Industrial Average ended higher by 54 points at 7,223, the Nasdaq closed higher by 5.5 points at 1,431 and the S&P 500 closed higher by 5.8 points at 756. Other than financials, healthcare was a strong performing sector. Energy was the main laggard of the day.

Among major economic news at Wall Street on Friday, the Commerce Department reported that U.S. trade deficit narrowed by 9.7% to $36.0 billion in January on an across-the-board decline in global trade flows. The drop was helped by a continued decline in oil prices and a sharp drop in exports.

In inflation-adjusted terms, the trade deficit widened slightly. Export volumes fell a record 8.6% in January, while import volumes fell 4.6%. The U.S. trade deficit was $59.16 billion in the same month last year. This is the sixth straight monthly drop in the U.S. trade gap, the longest string since the latest data series was started in 1992.

There were some activity in M&A area this week. Less than two months after Pfizer announced it will acquire Wyeth for nearly $68 billion in cash and stock, Merck and Schering-Plough announced they will merge their companies. Schering-Plough shareholders will receive 0.5767 shares of Merck and $10.50 in cash for each share of Schering-Plough.

In another set of merger news, it was reported today that Genentech and Roche are progressing toward a deal. As per reports, Roche is expected to pay $95 for each share of Genentech. Also, among impending mergers, Dow Chemical has agreed to pay $78 in cash for each share of Rohm & Haas.

On Friday, crude-oil futures for light sweet crude for April delivery closed at $46.25/barrel (lower by $0.78 or 1.7%) on the New York Mercantile Exchange. For the week, crude ended higher by 1.6%.

On that day, the IEA said in the monthly report that global oil supply in February is estimated at 83.9 million barrels a day, down 1 million barrels from a month ago and 3.4 million barrels from a year ago. The agency also lowered its forecast for this year's global oil demand to 84.4 million barrels a day, 1.5%, or 1.2 million barrels, lower than a year ago.

For the year 2009, Dow, Nasdaq and S&P 500 are down by 17.7%, 9.2% and 16.2% respectively.