7.25.08

7.25.08

 It looked like it was going to be a great week until Thursday. Then the market trended lower for virtually the entire session Thursday as stocks lacked leadership and participants returned their focus toward negative themes. The descent dragged the stock market to a 2.3% loss.

Selling was the most concentrated in the financial sector, which finished 6.7% lower. Coming into the session, the financial sector was up 34% from its low last week. However, when the sector dipped there was no buying support, as in recent sessions. 

Investors were reminded of the troubles in the housing sector, which has caused considerable pain to the financial sector, when the June existing home sales were announced. Annualized sales came in at 4.86 million, which is down from the prior reading of 4.99 million and below the consensus forecast of 4.94 million. Month-over-month, existing home sales slipped 2.6%. Additionally, the inventory of unsold homes jumped to 11.1 month's worth of supply from 10.8. The increased supply was taken as a sign that a bottom may be farther off than many hoped.

     It was a week of mixed economic and earnings reports. 

Bad news for the housing market on Thursday. It was reported Thursday morning that mortgage rates surged up to an average of 6.77% for 30-year mortgages this week, up from 6.42% just a week ago. And foreclosures rose 14% in the 2nd quarter over the 1st quarter, and more than double the rate of a year ago. And that existing home sales fell another 2.6% in June to a 10-year low, while the inventory of unsold existing homes rose to an 11.1 month supply, the 2nd highest level in 20 years. 

Bad news also for the employment picture on Thursday. It was reported that unemployment claims jumped by a big 34,000 last week. And the Dow tumbled 283 points on Thursday.

But then on Friday it was good news. It was reported that Durable Goods Orders rose 0.8% in June, their biggest gain since February. And new home sales declined only 0.6% in June, not as bad as had been forecast. And the UMich Consumer Sentiment Index unexpectedly rose to 61.2 in July from 56.4 in June. While 61.2 is still a very low number the improvement was not expected. Was it perhaps the result of the stimulus checks?

However, the market didn't get as big a pop up from the good news as the plunge created by the bad news on Thursday. But the Dow did close up fractionally, 21 points (0.2%) while the Nasdaq, Nasdaq 100, and Russell 2000 closed up 1.3%, 1.6%, and 1.1% respectively.

 Next week should be interesting to say the least!

A week ago, banking regulators announced the failure and takeover by the FDIC of the IndyMac Bank after the market's close on Friday.

That makes 7 failed banks so far in this crisis. More than a thousand banks and S&L's failed in the banking crisis of the late 1980s and early 1990s. And regulators are preparing for more failures in this cycle, adding to staff, and hiring outside contractors. 

Since there is again no clear direction as to the direction of this market, we are remaining 100% in CASH at this time.

Till next time

MTA Staff