Market Summary: Fri. Feb. 29, 2008

It was a rough day on Wall Street Friday. People saw green everywhere around campus except on their stock tickers. Not one of the stocks on my watch list was green Friday. The market opened lower and traded lower the entire day because of Dell’s sub-par earnings report Thursday after the close, weakness in the overseas markets, AIG’s big write-down, and not-so-hot PCE (personal consumption expenditure) data.

January personal spending increased 0.4% and personal income increased 0.3%, but a 0.3% increase (market was expecting a 0.2% increase) in the Core PCE cancelled out the personal income gains.

The regional manufacturing data (specifically Chicago) came in well below expectations. The market was looking for a reading of 49.5, but the report came in at 44.5. Last month’s reading was 51.5. A reading below 50 indicates contraction in manufacturing industry.

AIG reported a Q4 loss of $5.3B Thursday after the bell because of “an $11.1B write-down of derivatives linked in part to sub-prime mortgages.” AIG also hinted at more write-downs when they said “continuing market deterioration would cause [us] to report additional unrealized market valuation losses and impairment charges” in the future (Source: Bloomberg.com). This news from AIG spooked investors and caused the financials to lead the charge downward. That fear that was present in the markets about 4 weeks ago is back (the ^vix jumped to 26.5). If more bad news about financials hits the market, there is still plenty of room to go lower. Everyone keeps saying that “the path of less resistance is lower” and I agree.

UBS also came out with some news that weighed on the financial sector. The bank said write-downs could total $600B. Another analyst at Goldman Sachs estimates $400B in write-downs. Currently, there have been $181B in write-downs (Source: Bloomberg.com).

There was also a report on CNBC that some hedge funds were forced to sell their municipal bonds in order to meet margin calls. This sent municipal bond yields to historic highs. According to the WSJ, “the average AAA-rated 30-year municipal bond yielded 5.14% compared with 4.42% on a U.S. Treasury 30-year bond.”

The Fed announced they will auction $60B through their Term Auction Facility. The $30B auctions will take place March 10^th and 24^th. These two auctions will bring the total to six. In the statement made by the Fed, they said they will continue to have theses auctions “for as long as necessary to address elevated pressures” (Source: CNBC.com).

Some more things to look at….

1) Bloomberg.com article about Wilbur Ross and how he is helping Assured Guaranty

2) Bloomberg.com article about mortgage defaults and how they have risen to all-time highs

3) Bloomberg.com article about Northrop Grumman and how they won a $35B defense contract

About today: I bought stock (agriculture, energy, and few others) hand over fist right before the close. The inflation story still holds true, and it probably gets stronger as the economy gets weaker because the Fed will be forced to cut rates. Look for a weak Monday morning (Asian will get slaughtered) and another great opportunity to buy good stocks at a discounted price. Let the sellers push the market down for the first hour or so and then jump in and pick out the good stocks.

DJIA 12,266.39 -315.79 (-2.51%)
Nasdaq 2,271.48 -60.09 (-2.58%)
S&P 500 1,330.63 -37.05 (-2.71%)
NYSE Volume 4,343,070,000

2-Yr Bond 1.65% -0.22
10-Yr Bond 3.53% -0.18
30-Yr Bond 4.41% -0.14

Dollar Index 73.714 -0.007
Crude Oil (Apr) 101.84 -0.75
Gold (Apr) 975.00 +7.50