US Market amid immense trepidation

Good economic data fail to fight the credit crunch debacle

US Market’s witnessed its third consecutive weekly loss for the week ended Friday, 3August, 2007. Though the market tried to make a strong start on Monday, 30 July, 2007, concerns about deteriorating credit market and the overall economy weighed heavily on investor sentiment for the rest of the week. Market witnessed extreme volatile trading during the whole week.

A sense of negative thinking that a possible credit crunch will substantially slow the record pace of M&A activity swept the Wall Street during the week. As a reminder, last week, the Dow Jones Industrial Average had witnessed its worst ever weekly loss in last four years in percentage terms.

During the week, the credit markets concerns and bad-home loans once again resurfaced after news that American Home Mortgage Investment (AHM) might liquidate its assets after failing to meet margin calls. AHM said that it is unable to borrow on its credit facilities and is struggling to raise money, including "the orderly liquidation of its assets."

The comment from Bear Stearns on Friday, 3 August, 2007 reinvigorated concerns about a credit crunch and prompted a late, broad-based sell-off in the market. Reports that another Bear Stearns hedge fund has halted redemptions had already tensed investors earlier during the week.

The Dow Jones Industrial Average lost 85 points for the week. Tech - heavy Nasdaq lost 51 points while S&P 500 lost 26 points.

Among economic data that hit the market during the week, the Core Personal Consumption Expenditure (CPE) index, showed moderating price pressures, while Consumer Sentiment rose in July to its highest level in nearly six years.

Also, Chicago Personal Manufacturing Index (PMI) checked in with reading of 58.5. Since any number over 50 still reflects growth, market reacted positively to the figure. The Institute of Supply Management (ISM index) fell to a lower than expected 53.8% in July.

On the earnings front, Dow components - General Motors, Verizon, Walt Disney and Procter & Gamble all reported strong earnings results.

Among major corporate news, Boeing raised its estimate of the potential for airliner sales in India and said it sees India orders reaching $86 bln over the next 20 years.

Executive Summary

For the week, all the three indices once again registered moderate losses. DJIx is down by 0.7%, S&P 500 is down by 1.8% and Nasdaq is down by 2%. Though market kicked off the week with a strong start, good economic data failed to fight the credit crunch problem and indices slipped at the week’s close.

Crude prices soared beyond $78/bbl and closed at an all time high of $78.21 on Tuesday, 31 July. Treasury yields continued to fall. The yield on the benchmark 10-year note fell to 4.71% from 4.79% last week. Investors shifting away from equities was mainly the reason for this drop.

For the year, Dow is up by 5.8%. Nasdaq is up by 3.8% and S&P 500 is up by 1.3%. Second half of the year generally remains dull. With earnings taking a backseat now, news related to credit market and housing markets will definitely try to take the centre stage in the coming weeks.