Weekly Recap - Week ending 20-Feb-09Banks were under pressure this holiday-shortened week, first in Europe on Tuesday after rating agency Moody's said the recession in emerging European economies will be more severe than elsewhere, which is likely to pressure the Western European parent companies, then in the U.S. Friday on nationalization fears.

Despite a late-session rebound today, the major averages closed sharply lower on the week -- Dow -6.2%, S&P -6.9%, Nasdaq -6.1%, Russell -8.3%. Notably, the Dow declined to a new five year low of 7249.47, stopping just shy of a six year low at 7197.49, last hit in March 2002. All ten of the S&P economic sectors closed in the red for the week, ranging from a 1.5% decline in Consumer Staples to a 15.9% plunge in Financials.

The week began with a sharply lower open on Tuesday, with domestic banks following European banks lower after the Moody's report. There was also additional pressure on the market from the Empire Manufacturing Survey, which showed a steep drop to -34.7 in February from -22.2 in the prior month, well below the -23.8 consensus estimate. However, the initial move proved to be it for the major averages that day, as the S&P, which at its lows lost 4.6%, traded sideways through the majority of the session.

The market followed that up with two more consolidative sessions on Wednesday and Thursday. That action came despite President Obama announcing the details of his mortgage relief plan Wednesday morning.

The Homeowner Affordability and Stability Plan has three main components: 1) Refinancing for up to 4 to 5 million "responsible" homeowners to make their mortgages more affordable; 2) A $75 billion homeowner stability initiative to reach up to 3 to 4 million at-risk homeowners; and 3) Supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

What wasn't discussed is that the plan stops at conforming loans. If a homeowner has a jumbo loan, as many do, he is not covered. The plan itself appears rooted in a trickle-up principle, as it is believed that fortifying home values for 7 to 9 million families will be the pricing elixir for all homeowners.

President Obama's announcement ironically followed the lowest Housing Starts reading since records began in 1959. Starts fell to an annualized rate of 466K units in January, below the 529K consensus estimate. That marked a 16.8% decline from the revised December reading of 560K and is 56.2% below the year-ago level.

The consolidative trade ended Friday, however, as the major averages opened lower and sharply extended those declines on bank nationalization fears, particularly for Bank of America and Citigroup. Shares of BAC and C fell as much 35.6% and 35.9% to multi-decade lows. They only rebounded, along with the overall market, after a White House spokesman reiterated the government's support of the privately-held banking system and Rochdale analyst Richard Bove appeared on CNBC, saying Bank of America is one of the best buys he's ever seen on the NYSE. Shares of BAC and C closed 3.6% and 22.3% lower on the session.

Notably, the major averages showed little effect from hotter than expected inflation data. On Thursday, core PPI showed a 0.4% month/month increase in January, well above the 0.1% consensus estimate; on Friday, core CPI showed a 0.2% month/month increase, above the 0.1% consensus estimate.

The Economic Calendar is on the light side next week, but it features the Existing Home Sales report on Wednesday, the Durable Goods Orders report on Thursday, and the revised Q4 GDP report on Friday. The big event of the week is Fed Chairman Bernanke's semi-annual monetary policy report on Tuesday.

--Dave Campione, CFA, Briefing.com

Index

Started Week

Ended Week

Change

% Change

YTD %

DJIA

7850.41

7365.67

-484.74

-6.2

-16.1

Nasdaq

1534.36

1441.23

-93.13

-6.1

-8.6

S&P 500

826.84

770.05

-56.79

-6.9

-14.7

Russell 2000

448.36

410.96

-37.40

-8.3

-17.7