While foreclosures soared last month, the market jumped last week, leaving investors to wonder whether a recovery was beginning in construction.
There was caution to open the week as investors surveyed the effects of the Fed's surprise discount rate cut the previous Friday. Treasury bills rose on Monday, and equities bounced around before closing with the blue chips up 42 points and the broader market and techs in negative territory. Stocks turned in a mixed performance again on Tuesday, after confidence grew after comments made by Sen. Christopher Dodd. Following a meeting including Treasury Secretary Henry Paulson, Fed Chief Ben Bernanke, and himself, Dodd said that the Fed official would "use all the tools at his disposal" to stabilize the markets.
Investors relaxed on Wednesday amid merger chatter and increased expectations for an interest rate cut next month. The major indexes each gained more than 1%, but the rally lost steam the next day. Stocks closed slightly lower Thursday, which was marked by mortgage industry worries and potential spillover effects. A surprisingly strong 2.8% rise in new home sales and robust durable goods data helped the major indexes finish Friday's session with gains of more than 1.1% and end the week with a solid performance.
Trading may be light ahead of the Labor Day weekend. Economic data scheduled for release includes new home sales today, consumer confidence Tuesday, preliminary gross domestic product on Thursday, and personal income and factory orders on Friday.
Corporations posting earnings include DaimlerChrysler and TiVo on Wednesday; and Dell, Freddie Mac, H&R Block, and Tiffany on Thursday.
Stay market-tuned and Foolish!
Capital Markets Summary
U.S. Equities
|
8/24 Close |
Weekly Change |
YTD Change | |
|---|---|---|---|
|
Dow |
13,378.87 |
2.3% |
7.3% |
|
Nasdaq |
2,576.69 |
2.9% |
6.7% |
|
S&P 500 |
1,479.37 |
2.3% |
4.3% |
Commodities
|
Price |
Weekly Change | |
|---|---|---|
|
Crude oil |
$71.09 |
-1.24% |
|
Gold |
$677.50 |
1.60% |
Foolish Quiz
1. True or false: Tech shares led the market's advance on Friday.
2. Bank of America (NYSE:BAC) made the following news:
(a) invested in Countrywide (NYSE:CFC); (b) took advantage of the Fed's lowered discount rate; (c) forecast a recession; or (d) all of the above.
3. Which company was rumored to have caught Warren Buffett's eye: (a) Accredited Home Lenders (NASDAQ:LEND); (b) Capital One (NYSE:COF); or (c) Countrywide.
4. Transaction news on Wednesday included:
(a) a potential merger between E*Trade and TDAMERITRADE; (b) an equity stake purchased in MGM Mirage; or (c) the resurgence of private-equity leveraged buyouts.
5. True or false: Nymex held buyout talks with suitor Lehman.
6. Lowe's reported: (a) a higher profit; (b) a lower profit; (c) a higher forecast; or (d) a lower forecast.
7. True or false: Target hit the bull's-eye on its quarterly profit, but lowered its outlook.
8. Which retailer posted more stylish profits: Ann Taylor or Gap?
9. True or false: Sam Zell pulled his takeover bid of Tribune.
10. True or false: Burgers and ketchup each provided tasty corporate earnings last week.
Answers
1. True. Encouraged by the day's economic data, the Nasdaq rose 1.4%, boosted by the 3.2% rise in Apple's share price and the 2.3% increase in Intel.
2. (a), (b). On Wednesday there was word that Bank of America, Citigroup, JPMorgan Chase, and Wachovia (NYSE:WB) each borrowed $500 million through the Fed's discount window, a move thought to instill market confidence. The following day, news that Bank of America made a $2 billion investment in Countrywide initially cheered the market -- before Countrywide's CEO later commented that the housing slump could lead to a recession.
3. (c). Maybe Buffett should have moved faster. Before Bank of America's announcement late Wednesday about a stake in Countrywide, speculation surfaced on Tuesday that Berkshire Hathaway might acquire a position in the lender.
Meanwhile, shares of Capital One gained 2.6% on Tuesday after the company said it was closing its wholesale mortgage business and cutting 1,900 jobs, and shares of Accredited Home Lenders increased 1.7% that day after the company reduced its exposure to margin calls on $1 billion of loans.
4. (a), (b). Deal news briefly revived the market on Wednesday, but it wasn't the debt-ridden private equity kind. Instead, E*Trade and TDAMERITRADE reportedly were in talks about a possible merger. Shares of E*Trade fell 2.1%, while those of TDAMERITRADE rose 4.9%. Dubai World agreed to a $5 billion purchase of a 9.5% stake in MGM Mirage and half-ownership in the company's CityCenter development in Las Vegas. Shares of MGM Mirage gained 8.9%.
5. False. Nymex revealed late Tuesday that it has held talks about a possible buyout with various parties, and the rumored front-runner was thought to be NYSE Euronext. Lehman made news of its own on Wednesday when it announced that it will close its subprime lending unit and incur a $25 million charge.
6. (a), (c). Lowe's presented a mixed picture on Monday when it posted a better than expected 9% increase in its second-quarter profit, but lowered its full-year forecast because of the housing slump. Shares rose 6.3%.
7. False. Target reported an expected 12.6% increase in its second-quarter profit on Tuesday, while maintaining its full-year outlook. Shares rose 1.7%.
8. Gap. Gap's second-quarter profits increased 19%, helped by reduced expenses, while Ann Taylor's bottom line decreased 27% because of weaker same-store sales and drab earnings from its Loft chain. Shares of Gap rose 6.4% and those of Ann Taylor climbed 9.4% on Friday.
9. False. Zell remains committed to his $8.2 billion takeover of Tribune, which won shareholder approval on Tuesday. The deal is expected to close in the fourth quarter, despite a widening gap between the value of the transaction and the market price of Tribune shares. Shares of Tribune closed at $28.75 on Friday, up 12% for the week.
10. True. Investors ate up the profit reports from Burger King and Heinz. Burger King swung to a fourth-quarter profit, helped particularly by breakfast and late-night sales, as well as a tie-in from a SpongeBob Square Pants promotional campaign. Heinz benefited from higher prices and new products and posted a 6% increase in its first-quarter earnings, and raised its outlook for the year.
Scoring
8-10 correct: Foolishly impressive.
6-7 correct: Almost Foolish.
1-5 correct: OK, but just barely.
0 correct: Really? Keep reading the Fool, and watch your scores improve.
Intel is a Motley Fool Inside Value pick. Gap, Dell, and Berkshire Hathaway are recommended in both Inside Value and Stock Advisor. Bank of America, JPMorgan Chase, and Heinz are Income Investor picks. Whatever your investing style, the Fool has a newsletter for you.
Fool contributor S.J. Caplan, a former vice president and assistant general counsel of Goldman Sachs and a former vice president and derivatives finance specialist at Lehman Brothers, owns shares of NYSE Euronext. She serves as an arbitrator for the New York Stock Exchange and the National Association of Securities Dealers. The Fool has a disclosure policy.
