Taking Stock of Wall Street 2008-09-12

Friday's market was listless, possibly because the investors are wary of the financial sector.

First, the troubles at Lehman Bros (LEH), then at Washington Mutual (WM) and then at the insurance giant AIG (AIG).

Bear Stearns episode probably did not affect the market much because they didn't prolong the misery unnecessarily and admitted the failures without much delay.

Economic data published today were disappointing too:

While the August Producer Price Index fell 0.9%, Core producer prices rose 0.2%. Food prices rose by 0.3%.

Retail sales fell by 0.3% in August against the forecast gains of 3%.

Forecasts probably could not anticipate the 2.5% decline in gasoline sales had a significant impact on total August retail sales.

Realty Trac reports U.S. foreclosures rose 27% year over year.

The University of Michigan Preliminary Consumer Confidence Report for September rose to 73.1. It was 63.0 for August.
Crude oil fell by -0.07% to $100.80. Gold rose by 3.25% to $769.70.

Dollar fell Friday after a great performance during the week. Dollar Index fell by -1.6%.

Market indices gave mixed signals today. Dow reversed to the negative territory while S&P 500 and the Nasdaq just managed to turn positive:

Dow went DOWN by -11.72 (-0.10%) to 11421.99
SP 500 UP by 2.68 (0.21%) to 1251.73
Nasdaq UP by 3.05 (0.13%) to 2261.27

NYSE:
1781 stocks advanced against 1390 declined. 21 stocks topped their 52-week Highs while 182 stocks set new 52-week Lows.Total volume traded came to 1.3 bln.

Nasdaq:
1431 stocks advanced against 1457 declined. 18 stocks set a new 52-week Highs while 140 broke down below their 52-week Lows. Total 1.9 bln trades were made.

Financials had a bad day on Friday. Treasury Secretary Hank Paulson had declared on Thursday that the government has no intention of a Bear Stearns type of involvement in LEH case.

Then Moody's downgraded Washington Mutual's (WM) credit rating from Baa3 to Ba2.

Fitch followed with their downgrade of WM to BBB-.

Both these ratings mean that those agencies, for all practical purposes, consider WM's debt securities as risky.

So, WM responded with a third quarter outlook report that shows they are well-capitalized with quarterly provisions expected at $4.5 bln and liquidity at a strong $50 bln.

JPMorgan (JPM), who were interested in buying WM before, will get into bailing WM out now only if the government asks them, according to reports.

American International Group (AIG) was another troubled financial. The insurance firm had come out with large quarterly losses and markdowns.

Afternoon heard some good tidings.

Despite Treasury Secretary's earlier pronouncement, Federal Reserve, especially the NY Fed, and Treasury Department are helping Lehman Brothers (LEH) in finding suitable buyers.
The name making the rounds is a consortium lead by the Bank of America. It is still not clear how each of LEH divisions will be dealt with: investment banking, asset management and real estate loans.

Yet favorable news was that the debt and mortgage backed securities of Fannie Mae (FNM) and Freddie Mac (FRE) will be guaranteed by the Treasury beyond 2009.

Remember the recent bankruptcy rumor that brought down United Airlines shares? The SEC has now launched a preliminary investigation into how an old Florida Sun-Sentinel news item was circulated as fresh news.

How much investors mistrust the present situation is evident from the way the usually ignored utilities sector was encouraged. They felt more secure in buying the defensive shares of the utilities sector, which went up by 1%. Investors even bought into energy and commodity stocks which they beat down recently.

Analysts' rating:

Following stocks were upgraded:
AK Steel (AKS), F5 Networks (FFIV), Gilead Sciences (GILD), GOL Linhas (GOL)Greenhill (GHL), Lululemon Athletica (LULU), MTR Gaming (MNTG), Ormat Tech (ORA), Pepsi (PBG), Syngenta (SYT) and US Airways (LCC).

Downgraded ones include:
Alpharma (ALO), ARM Holdings (ARMH), Best Buy (BBY), Bioscrip (BIOS), Buffalo Wild Wings (BWLD), Canon (CAJ), CEC Entertainment (CEC), CEMEX (CX), Danaher (DHR), GSI Commerce (GSIC), Panera Bread (PNRA), PharmaNet Development (PDGI), Portugal Telecom (PT) and Quality Systems (QSII).

People benefited from the current turmoil in the financials in one way. The government's take over of Fannie Mae and Freddie Mac has resulted in a reduction in 30-year fixed mortgage interest rates. It fell from 6.14% to 5.78%.

The market is still moving in a range as proved by the insignificant weekly change in the indices:

Dow is up by 1.2%, S&P 500 up by 0.6%. and Nasdaq unchanged!

Small-cap and mid-cap indices performed better than the major indices, for a change.