Taking Stock of Wall Street 2008-09-26

McCain and Obama returned to the election debate after fellow Congressmen resented their interference in the bail-out talks.

That disappointed the global markets. Both Asian and European markets fell by 2%-4%.

The mortgage situation in UK seems to worsening. August housing prices retreated by another 4+% more than double the previous month. The Bank of England is to infuse another 40 bln pounds into their banking system to shore up the situation. Some of the top UK banks also have exposure to the US subprime debacle but are beneficiaries of the US bailout plan.

Economic Data:

Quarterly Corporate Profits - fell by -$60 bln, compared to previous quarter's -$17 bln

Quarterly Cash flow decreased by -$60 bln compared to previous quarter's +$10 bln rise.

Quarterly Personal Consumption: rose by only 1.2%, the forecast was for 1.7%. Previous quarter had a better performance at +1.7%.

Real gross domestic product -increased 2.8% (annualized). It bettered previous quarter's 0.9%. Imports decreased and exports increased during the last quarter. Still, it was less than the forecast of 3.3%.

University of Michigan Consumer Sentiment for September - rose to 70.3 from 63.0 in August. On a yearly basis, it is far less than the 83.4 index for September 2007.

Index of Consumer Expectations for September - rose to 67.2 from 57.9 in August, but was lower than the 74.1 reading for September 2007.

Oil fell by $ -1.13 (-1.05%) to $106.89.

Gold went up $6.50 (0.74%) to $888.50.

CBOE Volatility has not gone back to the 40 level but is still higher at 34.74, an increase of 1.92 from Thursday.

Market Indexes:

Dow went UP by 121.07 (1.10%) to 11,143.13
S&P 500 UP by 4.09 (0.34%) to 1,213.27
Nasdaq UP by 3.23 (-0.15%)to 2,183.34

NYSE

Daily volume: 1.15 bln.
A/D Ratio: 1047 stocks advanced against 2169 declined.
52-week Hi/Lo: 5 stocks set new Highs while 252 hit ne Lows

Nasdaq

Daily volume: 1.95 bln
A/D Ratio: 1238 stocks advanced against 1665 declined
52-week Hi/Lo: 9 stocks broke new Highs and 187 went down to new Lows.

Friday morning saw a brief address by President Bush to pep the market up. He said even though "the legislative process is not very pretty", "there is no disagreement something must be done."

Nevertheless, the uncertainty over the final outcome of Congressional deliberations affected the market and it slid. NYSE made a comeback towards the close, managing to finish in the positive territory though Nasdaq did not make it.

That happened after party leaders gave assurance that a final draft of the bail-out legislation will be ready before Monday's market open.

This helped the major banking stocks like JP Morgan (JPM), Citi (C) and Bank of America (BAC) to lead the comeback.

Regional banks were at the receiving end, especially National City (NCC) which was downgraded by analysts.

Technology stocks got a beating after the market's favorite Research In Motion (RIMM) posted less than expected results. That explains why Nasdaq index lagged others.

Google (GOOG) manages to be in the news, bad and good. Department of justice was seeking views from consumers for taking up possible anti-trust case against the Google-Yahoo tie up.

Good news was that China Mobile (CHL) would sell Google's Android handsets in China.

Now, we hear Nokia (NOK) too is jumping into the fray with its touch screen mobile market.

Other Market News:

HSBC (HBC) is cutting 1,100 jobs in its investment banking division.

New York's Attorney General's office will be investigating into abuse of stock short-selling and also whether credit-default swaps were also used to undermine the affected companies.

Company Results:

Jabil Circuit Inc (JBL), American Greetings Corp (AM), KB Home (KBH) and Research In Motion Ltd (RIMM) produced earnings less than those forecast by the market.
Only Accenture Ltd (ACN) exceeded the consensus figures.

Analyst Ratings:

Stocks upgraded include:

Bankrate Inc (RATE), F5 Networks Inc (FFIV), National City Corp (NCC), Research In Motion (RIMM), The9 Ltd (NCTY) and Vertex Pharmaceuticals Inc (VRTX).

Downgraded stocks were:

Agrium Inc (AGU), Blue Nile Inc (NILE), Canon Inc (CAJ), CF Industries Holdings (CF), General Electric (GE), General Dynamics (GD), Intersil Corp (ISIL), Mentor Corporation (MNT), Research In Motion Ltd (RIMM) Terra Industries (TRA) and Xyratex Ltd (XRTX).

How is the interbank loan scene faring?

Pretty bad. Banks do not want to lend money to each other and are increasing the loan interest rate. Both the rates on one-month and three-month Libor interbank loans have gone above 4%.

Does the short-sale ban have disadvantages?

Yes, one ready source of funds for banks is drying up - the convertible bonds. Hedge fund managers who cannot short-sell the financial stocks, don't need those convertible bonds any more for hedging purposes

After all the hectic activity in the market, what did the indices achieve on a weekly basis?

Dow DOWN by -2.2%
S&P 500 DOWN by -3.3 %
Nasdaq DOWN by -4.0 %.

That means the market is still bearish, sliding further in the mid-term and long-term, though making some efforts to be bullish in the short-term.

Did the Congress keep its promise and finally reach a compromise on the final draft of the banks' bailout plan?

Yes, they finally brought out a draft of the legislation on the bailout. But not the way Bernanke-Paulson-Cox trio wanted. The latter's threat of dire economic consequences in the absence of a $700 bln without strings attached, seemed to have fell on deaf ears.

The Congress will authorize $250 bln immediately. The next $100 bln will be released only after a presidential certification. The last $350 bln will need another Congressional consideration and approval. Not the quick, no-questions-asked lump sum allocation the top bureaucrats wanted.

Will the market rally this week?

May be, but this week's economic calendar also shows a few economic data releases, none of them expected to be encouraging!