13.10.2008 12:20

STOCKS: weekly review

The stock market posted its eighth consecutive loss in an extremely volatile session, which marked a fitting end to one of the most tumultuous weeks ever. The S&P 500 settled with a loss of 1.2%, which was actually a pretty decent result considering how far it was down at session lows.
For the week, the Dow, Nasdaq and S&P 500 declined 18.2%, 15.3% and 18.2%, respectively. For the year, the Dow, Nasdaq and S&P 500 are down 36.3%, 37.8% and 38.8%, respectively.

The S&P 500 plunged 7.7% on the open with global economic fears driving the selling interest. The index then quickly bounced back into positive territory, only to retreat toward session lows in afternoon trade. Then, in the final hour of the session, the S&P 500 rebounded from a loss of 7.3% to a gain of 2.9%, and eventually ended the day with a loss of 1.2%. Trading volume on the NYSE was the third heaviest on record, with 2.95 billion shares exchanging hands.
Eight of the ten economic sectors posted a loss. Small-cap stocks outperformed, with the Russell 2000 surging 4.7%.
Continued tightness of credit markets and uncertainty regarding the economic outlook fueled the volatility. The TED spread, which is the difference between what banks charge each other for three-month dollar loans (three-month Libor) and what the government pays (three-month T-Bill) rose 40 basis points to 4.64%. For comparison, the TED spread averaged 0.36% in 2006. The Volatility Index, which is considered to reflect market fear, spiked to its highest level on record.
Overseas stock markets, which closed before the U.S. stock market rebounded, saw some of their worst sessions in decades. In Asian trading, Japan's Nikkei fell 9.6% and Hong Kong's Hang Seng dropped 7.2%. In Europe, London's FTSE fell 8.9%, Germany's DAX dropped 7.0% and France's CAC declined 7.7%.
In corporate news, Lehman Brothers bonds were priced at 8.63 cents on the dollar during an auction by credit default swap (CDS) sellers, according to Creditfixings.com. In other words, firms that sold protection against Lehman defaulting on its debt, known as CDS, will be forced to pay 91.37 cents on the dollar to reimburse those who bought the protection -- resulting in steep losses for the firms that sold CDS.
Separately, Morgan Stanley (MS 9.68, -2.77) and Goldman Sachs (GS 88.80, -12.55) tumbled 22.3% and 12.4%, respectively, after the long-term credit ratings of both companies were put on review for a downgrade at Moody's.
Still, the financial sector (+7.0%) outperformed, as traders scooped up the recently beaten up shares of real estate investment trusts, regional banks (+9.5%) and large diversified firms (+10.2%), such as JPMorgan Chase (JPM 41.64, +4.96) and Citigroup (C 14.11, +1.18).
In earnings news, General Electric (GE 21.50, +2.49) posted a 10% year-over-year drop in third quarter earnings per share to $0.45, which met estimates. The company also said it is on track to meet its full year guidance and will maintain its dividend for the full year. Shares of GE rallied 13%, helping the industrial sector outperform with a gain of 1.8%.
Commodities plunged 6.7% and oil prices fell 6.9% to $80.61 per barrel as traders speculated a global economic slowdown will crimp consumption. The dollar advanced 1.6%, which also played a role in some of the decline in commodities.
The drop in oil prices weighed on energy stocks, which fell 8.1%.