Weekly Recap - Week ending
06-Mar-09
It was a rough week for the
stock market as a slew of negative economic data and continued concerns over
the state of financials weighed on investor sentiment. In the end, the
S&P 500, Nasdaq and Dow dropped 7.0%, 6.1% and 6.2%, respectively, for the
week. All three of the major indices fell to multi-year lows, with the S&P
500 trading at its lowest level in 12 years. Selling pressure was
broad-based, although financials saw the brunt of the decline, dropping 19.2%
for the week.
The negative tone started off
Monday with AIG (AIG) reporting a massive $61 billion quarterly loss, the
largest in U.S. corporate history. In turn, the struggling insurer
received an additional $30 billion in government aid. Also adding to the
bearish sentiment was a sharp sell-off overseas after HSBC (HBC) reported a
steep drop in profits. The UK-based bank said it will raise capital in a
dilutive stock offering, pare its U.S. operations, cut 6,100 jobs and reduce
its dividend.
Financials were in focus
throughout the week, mostly in a negative light as Fed Chairman Bernanke and
Treasury Secretary Geithner testified before House and Senate finance panels on
Tuesday and Wednesday. Meanwhile, U.S. Bancorp (USB) and Wells Fargo
(WFC), which are widely considered among the better run banks, both announced
that they will cut their dividends by roughly 85% to $0.05 per share in an
effort to save capital. Shares of USB dropped 38.4% for the week.
At the same time, General
Electric (GE), which slashed its dividend last week, got hammered on capital
concerns. The company moved to shore up investor confidence as several
corporate insiders made stock purchases, and the CFO went on CNBC to reassure
the market. Still, concerns remained over the health of GE Capital
Finance -- which accounts for 83.5% of GE's assets -- sending the stock down
17.0% for the week.
The financial sector did get
one piece of positive news, however. On March 12, the House Financial Services
Committee will meet to discuss mark-to-market rules. Some analysts
believe a repeal of the mark-to-market rule will help alleviate the pressures
on financials.
Economic news added to
concerns of the state of the U.S. economy. The ADP report showed 630,000
private job losses in February, foreshadowing the official government release
on Friday.
The number of jobs lost
totaled 651,000, which matched expectations, although previous months were revised
downward to show sharper losses. The unemployment rate, however, rose to
8.1% from 7.6%, which was worse than the expected reading of 7.9%.
With job losses mounting, many
homeowners are unable to stay current on their mortgage payments. In turn,
mortgage delinquencies as a percentage of total loans totaled 7.88% in the
fourth quarter. That was up from the 6.99% delinquency rate in the third
quarter. Meanwhile, January pending home sales dropped 7.7%, which was
worse than the expected decline of 3.5%.
The negative economic data was
reflected in the Fed's latest economic forecast in the Beige Book. The Fed
reduced its economic outlook, saying it doesn't expect economic recovery until
late 2009 or 2010.
Meanwhile, Europe is facing a
sharp downturn in economic activity on its own. As a result, the European
Central Bank lowered its target interest rate 50 basis points to 1.50%, as
expected. The Bank of England lowered its target interest rate to 0.50% from
1.00%, in-line with expectations. The Bank of England also announced it will
begin buying assets in order to increase the country's money supply.
In corporate news, Retailers
had an ugly session on Thursday after a large number of companies reported poor
same-store sales for February. Gap (GPS), Abercrombie & Fitch (ANF), American
Eagle (AEO), and Nordstrom (JWN) all reported double-digit declines. However,
companies catering to more cost-conscious consumers reported increased
same-store sales -- Wal-Mart (WMT) same-store sales rose 5.1% and raised its
dividend.
Auto sales also plummeted. Ford
Motor (F) reported February sales in North America fell 48%, which is steeper
than the 42% drop that was expected. General Motors (GM) reported February
sales sank nearly 53%, exceeding the 45% drop that was forecast. As a result,
concerns regarding a GM bankruptcy were elevated. GM shares dropped 35.6%
for the week.
Warren Buffett's annual letter
to shareholders reflected the gloomy economic outlook, saying he was certain
"the economy will be in shambles throughout 2009 -- and, for that matter,
probably well beyond -- but that conclusion does not tell us whether the stock
market will rise or fall." But, optimistic as ever, Buffett said,
"Though the path has not been smooth, our economic system has worked
extraordinarily well over time. It has unleashed human potential as no other
system has, and it will continue to do so. America's best days lie ahead."
--Ryan McShane, Briefing.com
|
Index |
Started Week |
Ended Week |
Change |
% Change |
YTD % |
|
DJIA |
7062.93 |
6626.94 |
-435.99 |
-6.2 |
-24.5 |
|
Nasdaq |
1377.84 |
1293.85 |
-83.99 |
-6.1 |
-18.0 |
|
S&P 500 |
735.09 |
683.38 |
-51.71 |
-7.0 |
-24.3 |
|
Russell 2000 |
389.02 |
351.05 |
-37.97 |
-9.8 |
-29.7 |