After Hours
for
24-Dec-07 18:55 ET
Despite
persisting concerns about the economy and a troubling outlook for the
financial sector, U.S. stocks finished another volatile week higher.
The rise was fueled by a late rally on Friday, following stronger than expected
results from Research In Motion (RIMM) and a report in
The Wall Street Journal that investment bank Merrill Lynch (MER), which has
been hit hard by mortgage-related write-downs, may sell a stake to a Singapore
investment fund.
Earlier in the week, however, stocks traded in unimpressive fashion,
as investors continued to wrestle with weakness in the housing and
credit markets and concerns about a slowing economy.
Factoring into the weakness on Monday was an announcement from Moody's that
it was considering downgrading the debt ratings of several bond
insurance companies as strain in the credit market continues to take
its toll on the financial sector. Also, diversified manufacturer Illinois Tool
Works (ITW) lowered its fourth quarter earnings guidance due to ongoing
weakness in its North American end markets.
On Tuesday, optimism about the European Central Bank's unprecedented
$500 billion injection into the banking system and easing in credit
markets helped lift stocks modestly higher, despite continued weakness
on the housing front.
The latest housing data from the U.S. Commerce Dept. suggests that
problems are far from over. According to the report, new housing
starts in November fell 3.7% to a 1.187 million annual rate, in-line
with expectations, while building permits slipped 1.5% to a largely
expected 1.152 million annual rate.
Although stronger than expected quarterly results from Goldman Sachs
(GS) contributed to early market gains, the stock fell off later in the
session as investors focused on the investment bank's cautious outlook
due to challenging market conditions and tougher comparisons ahead.
In another volatile session, stocks ended mixed on Wednesday as a $9.4 billion
write-down by Morgan Stanley (MS) and a tepid outlook for bond insurers weighed
on sentiment.
Standard & Poor's cut the credit rating of ACA Financial Guaranty Corp. and
placed Financial Guaranty Insurance Co. on watch for a downgrade given their
exposure to risky debt securities.
Not all of the news on Wednesday was bad, however. Morgan Stanley
also said it sold a $5 billion stake in the company to China Investment
Corp. in an effort to strengthen its capital position. The news, along
with strong demand for the first of the Federal Reserve's four
auctions, helped alleviate concerns about more severe liquidity issues
and provided a level of support for the overall financial sector.
While a strong earnings report from Oracle Corp. (ORCL) helped lift technology
shares on Thursday, the broader market traded lower following mixed economic
data.
The Philadelphia Fed's index of regional business activity in
December was a disappointing -5.7, and new claims for unemployment for
the week ended December 15 rose to 346,000 from 335,000 in the prior
week. A separate report showed third quarter real GDP was unchanged at
a 4.9% annual rate.
In corporate news, investment bank Bear Stearns
(BSC) reported its first ever quarterly loss and announced an
additional $700 million in write-downs for mortgage-related
securities. FedEx (FDX), meanwhile, reported fiscal
second quarter results ahead of analysts' lowered expectations, but
provided disappointing guidance for the current quarter.
In a further sign of weakness in the financial sector, bond insurer MBIA
(MBI) disclosed that its total exposure to the collateralized debt
obligations, or CDOs, is about $30.6 billion. The news was especially
bothersome for investors who felt blindsided by the admission which
came after the company's credit rating was upheld by Moody's and
Standard & Poor's.
In addition to Research In Motion's strong quarterly results and
rumors that Merrill Lynch will receive a cash injection from an
overseas investment company, the Commerce Dept.'s report on personal
spending, which showed healthy consumer spending trends, along with
a solid report from Walgreen Co. (WAG), helped fuel the rally on Friday.
According to the Commerce Dept., November personal spending rose
1.1%, ahead of analysts' forecast for a gain of 0.7%, while the core
PCE increased 0.2%. Core inflation is now up 2.2% over the past 12
months, above the upper range of the Federal Reserve's comfort zone of
1% to 2%, but still well off a level that should raise broad inflation
concerns. Personal incomes were also up in November, increasing by
0.4%, but fell just short of the consensus estimate.
Consumer spending has been closely watched amid mounting concerns
about the economy, especially during the important holiday shopping
season, as it accounts for more than two-thirds of total GDP and is
critical to the overall health of the economy.
--Richard Jahnke, Briefing.com
Index
Started Week
Ended Week
Change
% Change
YTD
DJIA
13339.85
13450.65
110.80
0.8 %
7.9 %
Nasdaq
2635.74
2691.99
56.25
2.1 %
11.5 %
S&P 500
1467.95
1484.46
16.51
1.1 %
4.7 %
Russell 2000
753.93
785.60
31.67
4.2 %
-0.3 %
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