US Market witnesses its worst weekly drop in four years

Just the way deal-making news had taken the US Market to new highs, problems related to financing those deals pushed US Market to their lows for the week ended Friday, 27 July, 2007 and Dow Jones Industrial Average witnessed its worst ever weekly loss in last four years in percentage terms.

Investors digested mixed earnings results once again during the week but ongoing problems in housing and credit market added to the list which already had subprime issues heading it. Other than Apple, none of the earnings reports had any major positive impact on the market sentiments. Market even ignored the strong second quarter GDP numbers announced on Friday, 27 July, 2007.

Growing fears that private equity is having difficulties raising money for acquisitions they've already made was the biggest catalyst behind the week’s market crash.

The Dow Jones Industrial Average lost 586 points for the week. Tech heavy Nasdaq lost 125 points while S&P 500 lost 75 points. The Dow's percentage loss was its worst since March 2003, when it dropped 4.4%. The S&P 500's loss, in percentage terms, was its worst since September, 2003. The Nasdaq's percentage loss for the week was its worst since 2004.

The Materials sector turned in the worst performance followed by Utilities, Financial, and Consumer Discretionary. Materials were worst hit due to a bad earnings report from an important Dow component, Du-Pont. Exxon Mobil was the other biggie to come out with an earnings miss.

Among other names, Merck, AT&T and Amazon.com reported positive results. Ford Motors surprisingly reported its first quarterly profit in almost two years.

On Wednesday, 25 July, 2007, the National Association of Realtors reported that existing home sales, which represent approximately 85% of the housing market, fell 3.8% in June to a 5.75 million annual rate. That was a larger decline than expected and marked the lowest level in nearly five years.

On Thursday, 26 July, 2007, the Commerce Department showed sales of new homes dropped by 6.6% last month to an annual rate of 834,000, well below the consensus estimate of 900,000. The median home price also fell 2.2% to $237,900. That was the largest drop since April.

On Friday, 27 July, 2007, the Commerce Dept reported that the U.S. gross domestic product grew at a 3.4% annual pace in the second quarter, a strong rebound from the 0.6% gain in the first quarter of the year (against economists’ expectation of a 3.2% gain for the quarter).

Executive Summary

For the week, all the three indices registered substantial losses. DJIx is down by 4.41%, S&P 500 is down by 4.9% and Nasdaq is down by 4.7%. Housing and credit market problems continued to haunt stocks. Earnings misses from two big names – Du Pont and Exxon Mobil shook sentiments further.

The yield on the benchmark 10-year Treasury note fell to 4.74% from 4.96% during the end of the week. Crude prices soared beyond $77/bbl but it did not help Energy stocks any way which continued to bear the brunt of Exxon Mobil’s disappointing result.

For the year, Dow is up by 6.4%. Nasdaq is up by 6.1% and S&P 500 is up by 2.9%. With credit crunch hitting the market and housing problem still having a long way to go before soothing, market sentiment is presumed to remain a bit shaky in the forthcoming week too.