An eventful week for US Market

Market manages to eke out some gains despite cautious comments coming from Fed Chairman

Lots of events dominated the US during the week that ended on Friday, 15 February, 2008. But the best part was that indices registered gains for the week after, each shedding more than 4% last week. Market closed higher in the first three days of the week but slipped in the later two.

The Dow Jones Industrial Average gained 166 points for the week. Tech - heavy Nasdaq gained 17 points. S&P 500 added 18.7 points.

On Monday, 11 February, it was reported that effective 19 February, 2008, Bank of America and Chevron will be added to the Dow Jones Industrial Average in place of Altria Group and Honeywell respectively. But on that very day, another Dow component AIG led to Dow's downslide.

AIG was a major drag on the market on Monday after the company clarified its prior disclosures regarding CDOs saying that it has yet to determine the decline in value of its portfolio, and is still accumulating market data to update its valuation. The stock slipped by 12% and Dow would have ended the day higher, if not for AIG.

But the biggest news of the week was on Tuesday, 12 February, when it came to light that Warren Buffett's Berkshire Hathaway has made an offer to several flagging bond insurers. Berkshire Hathaway has sent an offer to reinsure the municipal bond holdings of Ambac, MBIA and FGIC. Berkshire offered to take a liability of $800 billion, adding $5 billion of its resources. Berkshire pledged there would be no distribution or management fees taken for 10 years. Dow ended the day higher by more than 100 points.

On 13 February, Wednesday, good earnings reports and encouraging retail sales data help market close higher for third straight day. The Dept. of Commerce said January retail sales grew by 0.3%, and also grew by 0.3% excluding autos. Market was in fact expecting a decrease of 0.3% for retail sales, and rise of 0.2% when excluding autos. With regard to earnings, Coca-Cola and Applied Materials topped expectations. Dow and Nasdaq ended the day higher by 179 points and 54 points respectively.

On Thursday, 14 February, Federal Reserve Chairman, Ben Bernanke expressed his worries about the US economy in the near term. Though market opened modestly higher in the morning, sellers took position quite soon after Bernanke's testimony.

Bernanke alluded to the possibility the U.S. is nearing a recession and continued to emphasize downside risks to the economy. He clearly indicated that the Fed will likely continue to ease interest rates, if required. The Fed Chairman stated that financial companies will likely face further write-downs. Market ended its winning steak and market gave up all of its Wednesday's gains.

On Friday, 15 February, market once again ended lower after a couple of disappointing economic reports and cautious guidance. Best-Buy lowered its 2008 forecast, as the Minneapolis-based electronics retailer cited soft customer traffic in January. The disappointing economic reports included lowest reading in a New York region manufacturing survey since May 2003 and the lowest consumer sentiment reading reported by the University of Michigan since February 1992.

Though Dow was more than 100 points down earlier during the day, it managed to shed off most of its loss while going into close. A buying spree in the financial sector helped market in making this turnaround.

Yahoo's board met over last weekend and concluded that the $44.6 billion offer from Microsoft "substantially undervalues" the company and "is not in the best interests" of the company and its shareholders.

On the economic front during the week, Jobless claims report for the week ended 9 February came in. The figure fell to 348K from the previous reading of 357K. The number was basically in-line with expectations. Separately, the December trade deficit fell to $58.8 billion from $63.1 billion.

Executive Summary

For the week, indices registered modest gains. DJIx and S&P 500, each closed up by almost 1.4%. Nasdaq closed up by 0.75%. Market closed higher during the first three days of the week, but closed lower in the last two days. Crude prices ended the week almost 4% higher.

After gaining for three straight days, market ended with losses on Thursday after Bernanke alluded to the possibility that the U.S. is nearing a recession and continued to emphasize downside risks to the economy. He clearly indicated that the Fed will likely continue to ease interest rates, if required. Other than that, a couple o discouraging economic reports took out some steam from the market on Friday.

For the year, Dow, Nasdaq and S&P 500 are down by 7%, 12.5% and 8% respectively. The market is closed Monday, 18 February in observance of Presidents Day.