Sunday, January 06, 2008

Weekly Wrap

Last week was a tough week in the market. Here is's weekly recap:

U.S. stocks began the week on shaky ground, trading lower on Monday – the last day of 2007 – amid ongoing concerns about the fallout in the housing and credit markets, yet the market still managed to post a modest gain for the year as strength in the technology sector offset declines in financials and consumer-related stocks.

For 2007, the tech-heavy Nasdaq Composite index gained 9.8%, outpacing the broad S&P 500 and blue-chip Dow Jones Industrials, which were up 3.5% and 6.4%, respectively. All three major indices posted a loss for the fourth quarter, however.

After returning from the New Year break on Wednesday, investors pressured stocks further due to a surprise contraction in manufacturing activity and surging oil prices, which hit $100 per barrel. The Dow Jones Industrials plunged more than 220 points during the session, dashing any hope for a New Year's rally.

According to the Institute for Supply Management, national manufacturing activity shrank unexpectedly in December, fueling concerns about the spillover effect of the subprime crisis leading to an economic recession. Specifically, the ISM Index fell to 47.7 from 50.8 in November - a reading below 50 indicates a contraction in manufacturing activity.

Also during the session, the Fed released the minutes from its December 11 FOMC meeting, but the report offered little insight for the market and failed to calm jittery investors.

Despite some mildly positive initial claims and factory orders data, the market extended its losses on Thursday as overarching concerns about the economy continued to weigh on investor sentiment.

The Labor Department showed new claims for unemployment for the week ended Dec. 29 fell to 336,000, from 357,000 in the previous week.

Meanwhile, the November factory orders report rose a surprisingly strong 1.5%. That marked the third straight month of an increase and is good news for the economy. Durable goods new orders for the month were previously announced as up 0.1%, but were revised with the latest report to -0.1%. Non-durables orders were up 3.0%.

In corporate news, drug stores, including Rite Aid (RAD), CVS Caremark (CVS), Walgreen (WAG) and Longs Drug Stores (LDG), reported weak same store sales in December, as a milder flu season and increased sales of generic drugs weighed on results.

The Labor Dept.'s much anticipated employment report on Friday, which showed weaker than expected job growth and a rise in the unemployment rate, compounded the market's slide in the shortened week as all three major indices posted sharp declines on the news.

Non-farm payrolls rose 18,000 in December, well below the 70,000 increase analysts were expecting. The November payroll gain, meanwhile, was revised to show an increase of 115,000 from a previously reported 94,000 increase.

The report also showed unemployment increased to 5% last month from 4.7% in November. While 5% unemployment is still considered good, the increase from the prior month was discouraging for some investors as it fed concerns about the economy possibly slipping into a consumer-led recession.

Separately, the ISM index of non-manufacturing activity showed the nation's services sector grew at a slightly slower pace in December than in the previous month. The index slipped to 53.9 from 54.1 in November, yet was slightly ahead of analysts' forecast of 53.5.

On the corporate front, it didn't help the market on Friday either that JP Morgan lowered its rating on Dow component Intel Corp. (INTC) to Neutral from Overweight, and removed General Motors (GM) from its Focus List.


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