A strong job report calm investors easing recession fears
A strong September job growth report by Labor Department on Friday, 5th October, 2007 helped US market post strong gains for the week which ended on that day. The report helped market calm the recession fears which arose after quite a few financial firms came out with warnings on the earnings front.
The Dow Jones Industrial Average gained 170 points for the week. Tech - heavy Nasdaq gained 79 points and S&P 500 gained 31 point. The S&P finished at a new all-time closing high while the Nasdaq finished at its highest level since February, 2001. Dow finished a little bit lower compared to its all time high.
The Department of Labor, reported on Friday, 5 October that September nonfarm payrolls, rose 110,000, slightly larger than the gain of 100,000 that had been expected. What was more important was the fact that, the 4,000 decline previously reported for August was revised sharply higher to an increase of 89,000.
On Monday, 1 October, it was once again a day for record high at US Market. Traders took bad news in terms of profit earning from two top companies in good spirit and indices rallied with the Dow gaining 191 points on that day. Citigroup and UBS came out with some third quarter profit warnings.
On Tuesday, 2 October, more disappointing news on the housing front prompted many investors to take some profits off the table. The National Association of Realtors reported that pending home sales fell a larger than expected 6.5% in August from July and 21.5% from a year earlier. The report suggested that existing home sales will most likely remain weak in the coming months.
On Wednesday, 3 October, though comments from Morgan Stanley weighed heavily on technology sector, the stock market managed to cut half of its losses following the report from Institute for Supply Management on service sector. The Institute for Supply Management's services report checked in at 54.8, slightly down from 55.8 in August, but as the above 50 level reflects growth, market took the report positively.
On the flip side, Morgan Stanley said it expects the companies to under perform due to inventory corrections and an increasingly aggressive pricing environment. Dow and Nasdaq shed 79 points and 7 points respectively on that day.
On Thursday, 4 October, 2007, market remained almost calm as many investors probably stayed away awaiting the next day’s crucial job report. Dow closed higher by 6 points on that day.
On Friday, 5 October, stocks traded sharply higher after the reassuring job report report with both the Dow and S&P hitting new all-time highs during intraday trading. Dow gained 91 points on that day.
Among other economic news hitting the market during the week, The Department of Commerce reported that factory orders in August slipped 3.3%, versus analysts' expectations for a decrease of 2.8%. Orders were up 3.4% in July. Weekly initial jobless claims for the week ended 19 September rose to 317k. That was up from the previous reading of 301k, and higher than the consensus estimate of 310k. Neither of the reports had much impact on overall market.
But on Friday, 5 October, again another batch of earnings warnings came from Washington Mutual and Merrill Lynch. Both companies stated that third quarter earnings will take a big hit due to the credit market turmoil.
Executive Summary
For the week, the indices closed modestly up. DJIx was up by 1.2% and S&P 500 was up by 2.02%. Nasdaq was up by 2.9%. A strong job report helped calm investors who had otherwise recession fears creeping in their minds.
For the year, Dow is up by 12.9%, Nasdaq is up by 15.1% and S&P 500 is up by 9.8%.
The third quarter earnings reporting period gets its official start in the coming week when Dow component Alcoa reports after Tuesday's close and General Electric reports before the open on Friday. Other than that, reports that might garner some attention are Producer Price Index report and Retail Sales reports.