US stocks ended a volatile week lower as investors continued to fret about the health of the financial sector, particularly mortgage giants Fannie Mae and Freddie Mac, and responded to a mixed set of earnings news and economic data. Stocks staged a rally on Friday after a speech by Federal Reserve chairman Ben Bernanke and a fall in oil prices, but remained in negative territory for the week. In spite of the rally on Friday the S&P 500 index was down 0.5% for the week at 1,292.19 and the Nasdaq Composite was 1.5% lower at 2,414.71. The Dow Jones Industrial Average ended the week 0.3% lower at 11,627.49.
Friday’s stock market rally came after Mr Bernanke indicated the Fed should be able to maintain its low federal funds target rate for some time, as the recent drop in commodity prices coupled with reduced demand for resources due to the economic downturn should reduce the threat of inflation. Fannie Mae shares fell 37% over the course of the week and Freddie Mac shares were down 51% at $2.81 as speculation mounted that the embattled mortgage lenders would have to be bailed out by the government. The crisis surrounding Fannie and Freddie seemed to ease slightly on Thursday as both the equity and debt of the two US mortgage financiers rallied, but concerns about their long-term health remained.
Lehman Brothers was also in sharp focus, with rumours rife that it could soon be a takeover target. The investment bank saw its shares slump early in the week before shooting up more than 15% on Friday on dealing room chatter in New York linking it with bid interest from Korea Development Bank. KDB went on to acknowledge it had been in talks with Lehman over the potential sale of a major stake in the company. The bank continues to be surrounded by worries about its ability to withstand losses and writedowns related to the credit crisis. Its shares fell 11% on the week. Lehman’s problems brought other Wall Street Banks into focus. Goldman Sachs ended the week down 2.1%, Morgan Stanley was down 5% while Citigroup fell 2.2% and Merrill Lynch was 4.1% lower. The S&P investment banking index fell 3.3% and the S&P financials index ended 3.1% down.
In earnings news,
fast food chain Burger King Holdings posted a 42% rise in fiscal
fourth-quarter net income as customer traffic hit a 10-year high, but its
shares still fell 9.1%. Barnes &
Noble fell 5.3% after the book vendor cut its full-year
forecast and posted lower quarterly earnings. HJ Heinz, the
food maker, reported a rise of 11% in fiscal first-quarter profit
thanks to double-digit sales growth. Robust laptop
sales helped push Dow component Hewlett-Packard to a strong performance in the
third quarter, in spite of the tough economic climate. HP rose 3.2% after the company reported sales and profits that beat Wall
Street forecasts after the market closed on Tuesday.