2008-07-03 13:52:20ET ******
Weekly Wrap With the Fourth of July holiday on Friday, it was a short week of trading. It was also a volatile week of trading, accented primarily by a negative bias that was tied to ongoing concerns about the financial sector, rising oil prices, earnings disappointments and the deteriorating state of the U.S. auto industry.
The first trading day of the week also happened to mark the end of the second quarter. The S&P finished close to flat that day, but fittingly, the financial sector underperformed by a large margin as it did throughout the second quarter - and the first half of the year for that matter.
The first trading day of the third quarter got off to a slightly better start, but not before the major indices probed the depths of bear market territory in a trade that lacked leadership. That changed in quick fashion, though, when a better-than-feared sales report for June from General Motors (GM) and the recognition that the S&P managed to find support at the bear market threshold (a decline of 20% from a peak is technically viewed as a bear market move) sparked a notable recovery effort that saw the S&P rally 1.9% off its low to finish with a gain of approximately 5 points.
Wednesday marked a return to recent form, though, as traders sold into the strength and left the indices suffering from sharp losses. Remarkably, General Motors was an instrumental force in Wednesday's trade, too, only this time it was cast in a negative role.
Merrill Lynch, frankly, was the real spoiler as it downgraded GM to underperform from buy, noting at the same time that bankruptcy for the auto maker was not an impossibility. GM simply responded by saying it believes it has sufficient liquidity to meet its needs in 2008.
GM's stock fell 15% Wednesday to $9.98, marking its lowest level since 1954! Its counterpart, Ford (F), didn't fare much better in the shortened week. Its stock dropped 11% to $4.42, or roughly the equivalent of the price of a Happy Meal at McDonald's.
It didn't help matters either Wednesday that the government reported a decline in crude inventories in the latest week. Many forecasters had expected to see an increase. The disappointment prompted a spike in oil futures, which rose 1.8% to a record closing high of $143.57. Oil prices continued to press higher Thursday, topping $145 per barrel before backing up just a bit from that record mark.
The move in energy prices didn't help the energy sector to any great degree. It slipped 1.4% as concerns about demand destruction due to higher prices triggered selling interest in oil-related stocks.
The hardest hit area on the week, though, was the materials sector. It fell 5.8% as a rate hike by the European Central Bank, worrisome economic data out of the U.K. and Japan, and general concerns about a slowdown in the global economy triggered an aggressive bout of profit taking.
Pockets of strength during the week were found in defensive-oriented sectors, such as consumer staples (+1.2%), health care (+1.2%), telecom (+0.3%) and utilities (+1.6%). The consumer discretionary (-2.4%), financial (-2.9%), and technology (-2.3%) sectors all underperformed the market.
There were a number of economic reports during the week. They brought mixed results relative to market expectations, but altogether, they didn't alter Briefing.com's view that real GDP growth in the second quarter should be above 2%.
The most important report of the week was the June employment report. It was released before the start of trading Thursday and checked in close to expectations on all fronts. Nonfarm payrolls declined 62,000 (consensus -60K), hourly earnings rose 0.3% (consensus 0.3%), the average workweek was 33.7 hours (consensus 33.7) and the unemployment rate held steady at 5.5% (consensus 5.4%).
Market participants digested the news reasonably well since there wasn't any really bad news in the report and the mentality ahead of the report was that it was likely there would be really bad news embedded in the data. Accordingly, with the worst of the fears unrealized, the stock market attracted some bottom-fishing buying efforts. Those efforts, however, still only computed to a 0.1% gain for the S&P Thursday.
The gain in the S&P was good enough to leave the index above bear market territory. It is currently down 19.9% from the peak it hit last October. A similar claim can't be made for the Dow, Nasdaq or Russell 2000, though, as each is down more than 20% from the peaks they hit last year.
--Patrick J. O'Hare, Briefing.com
**For interested readers, the S&P 400 Midcap Index, which is not included in the table below, declined 4.4% for the week and is down 8.3% year-to-date.
|
Index |
Started Week |
Ended Week |
Change |
% Change |
YTD |
| DJIA |
11346.51 |
11288.54 |
-57.97 |
-0.5 % |
-14.9 % |
| Nasdaq |
2315.15 |
2245.38 |
-69.77 |
-3.0 % |
-15.3 % |
| S&P 500 |
1278.38 |
1262.90 |
-15.48 |
-1.2 % |
-14.0 % |
| Russell 2000 |
698.14 |
665.78 |
-32.36 |
-4.6 % |
-13.1 % |
| 
