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| Currency | US Dollar |
|---|---|
| British Pound to US Dollar | 1.569120 |
| Euro to US Dollar | 1.377410 |
| Japanese Yen to US Dollar | 0.011141 |
| Canadian Dollar to US Dollar | 0.937032 |
Stocks finished basically flat on Friday, a big win for investors, as $87.5 billion pumped into the banking system by the Federal Reserve in the last two days helped stabilize the nation's credit system.
What proved to be relatively modest losses for the major indexes capped another wildly volatile week in the markets, one that forced central banks around the world to help out their banking systems.
Bulls will say the day's decent finish sets up the market for a rally next week. Bears will argue the problems that have roiled markets -- especially the stresses in the U.S. housing and credit markets and the unknown health of hedge funds -- will continue to worry investors for weeks to come.
The one outcome that they seem to agree on: The Fed will cut its key short-term rate sometime soon, perhaps as early as next month.
At the close, the Dow Jones industrials were down 31 points, or 0.2%, to just under 13,240. The Standard & Poor's 500 Index was up about a half point to 1,454, and the Nasdaq Composite Index was down 11.6 points, 0.5%, to 2,545.
It was the fourth Friday in a row that saw the blue-chip index finish with a decline. But if the changes for the indexes proved to be modest, there was plenty of drama just getting there. The Dow opened by falling 212 points in the first half-hour. It recouped that loss, then fell back to a loss of some 140 points before rallying in the last hour of trading.
And for all the drama Thursday, when the Dow lost 387 points, and Friday, investors came out ahead on the week, thanks to big rallies on Monday and Wednesday.
The Dow was up nearly 58 points. The S&P 500 was up about 21 points, and the Nasdaq was up 34 points.
For the year, the Dow is up 6.2%. The S&P 500 is up 2.5%, and the Nasdaq is up 5.4%.
The sectors that brought the markets back on Friday were energy, technology, drugs and financials. The last group, of course, was badly battered on Thursday.
Hewlett-Packard (HPQ, news, msgs) and IBM Corp. (IBM, news, msgs), for example, were among the Dow leaders. IBM was up 1.7% to $112.64. HP ended up 0.4% $47.21. ExxonMobil (XOM, news, msgs) was the second-best Dow performer, up 1.1% to $84.51.
The Fed and other central banks ride to the rescue
The Federal Reserve injected a total of $38 billion into the banking system Friday to keep the financial system operating smoothly. The last of three injections came at about 1:45 p.m. The central bank came into the market, it said, to help the markets weather disruptions in money and credit markets. Its goal was to keep the federal funds rate at 5.25%; it had reached 6%.The Fed had put $24 billion into the banking system on Thursday. The 2-day move was the biggest since after the Sept. 11, 2001 terror attacks.
To put money into the system, the Fed buys securities -- in this case those backed by mortgages -- in the market, and the cash is deposited in commercial banks. That allows the banks to increase their cash supply so they can continue to make loans and buy and sell securities. The deals the Fed made were very short-term and require the sellers to buy them back in a few days or weeks.
Notwithstanding the Fed's efforts Friday, this turmoil has economists predicting that the Fed will reduce interest rates at its next meeting in September.
The Fed's move came after the European Central Bank and central banks in Japan, Australia, Singapore, Switzerland, Canada and Norway also moved into the markets.
The European Central Bank put $84 billion into the European banking system a day after injecting $130 billion. The goal, the bank said in a statement was "to assure orderly conditions in the euro money market."
"The fact that (the ECB is offering more funds) means there's a serious problem," David Mackie, European economist with JP Morgan in London, told Bloomberg News, "but if they weren't responding to the serious problem you'd be even more worried."
The banks acted on massive selling in Asia and then Europe. The Nikkei 225 Index ($N225) in Japan fell more than 400 points to 16,764. Germany's Xetra Dax Index ($DE:DAX) tumbled 1.5% to 7,343, and Britain's FTSE -100 Index ($GB:UKX) slumped 3.7% to 6,038. All three indexes finished the week with losses, and all are down about 8% this quarter.
| Close for week | Wk. ago close | % chg. | YTD. chg. | |
|---|---|---|---|---|
| Dow Jones industrials | 13,239.54 | 13,181.91 | 0.44% | 6.23% |
| S&P 500 | 1,453.64 | 1,433.06 | 1.44% | 2.49% |
| Nasdaq Composite | 2,544.89 | 2,511.25 | 1.34% | 5.37% |
| Russell 2000 | 788.78 | 755.42 | 4.42% | 0.14% |
| Crude oil per barrel | $71.47 | $76.48 | -6.55% | 17.07% |
| 10-yr. Treasury yield | 4.78% | 4.70% | 1.62% | 1.40% |
| Gold per troy ounce | $681.60 | $684.40 | -0.41% | 6.83% |
Blackstone earnings could move stocks
There will be fewer earnings reports next week as the second-quarter season starts to wind down, but there are some key reports that could definitely move markets.Monday will see the first quarterly report from buyout firm Blackstone (BX, news, msgs). The units of the master limited partnership went public on June 22 and have fallen 30% after seven weeks. But the units did fairly well on Friday, rising 1.4% to $25.28.
Two Dow components will report on Tuesday: Home Depot (HD, news, msgs) and Wal-Mart Stores (WMT, news, msgs). Home Depot is down 10.6% on the year; most of the loss has come since the end of June. The company disclosed Thursday that it may have to cut the price it gets for its builder-supply business. Wal-Mart is down 3.2% so far this year.
The biggest report on Wednesday will be Deere (DE, news, msgs), the farm equipment maker.
Thursday will see a report from another Dow component report: Hewlett-Packard (HPQ, news, msgs), which will come after the close. J.C. Penney (JCP, news, msgs) and Kohl's (KSS, news, msgs) will report in the morning.
Economic reports include retail sales on Monday; wholesale inflation on Tuesday; consumer inflation on Wednesday; and housing starts on Thursday.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 4.415% | 4.720% | -0.305 | -8.21% | -9.62% |
| 5-year Treasury note yield | 4.566% | 4.584% | -0.018 | -0.78% | -2.87% |
| 10-year Treasury note yield | 4.776% | 4.790% | -0.014 | 0.10% | 1.40% |
| 30-year Treasury bond yield | 5.005% | 5.029% | -0.024 | 1.69% | 3.88% |
| Currencies | |||||
| U.S. Dollar Index | 80.60 | 80.66 | -0.06 | -0.08% | -3.40% |
| British pound in dollars | $2.0247 | $2.0243 | 0.0004 | 0.00% | 3.32% |
| Dollar in British pounds | £0.4939 | £0.4940 | -0.0001 | 0.00% | -3.21% |
| Euro in dollars | 1.3697 | 1.3682 | 0.0015 | 0.27% | 3.77% |
| Dollar in euros | € 0.7301 | € 0.7309 | -0.0008 | -0.27% | -3.63% |
| Dollar in yen | ¥118.37 | ¥118.11 | 0.26 | 0.49% | -0.55% |
| Commodities | |||||
| Gold | $681.60 | $672.80 | $8.80 | 0.34% | 6.83% |
| Copper | $3.3595 | $3.3610 | -$0.002 | -7.92% | 17.01% |
| Silver | $12.8700 | $12.7050 | $0.16 | -2.40% | -1.78% |
| Crude oil (NYMEX) (per barrel) | $71.47 | $71.59 | -$0.12 | -8.62% | 17.07% |
Countrywide Financial sets off a selling wave
What put pressure on markets around the world began after Thursday's drubbing when Countrywide Financial (CFC, news, msgs), the nation's largest mortgage lender, said it faced "unprecedented disruptions" in the credit markets that could damage its earnings and financial health.Countrywide Financial shares were down more than 12% in after-hours trading last night, but, in regular trading Friday, the loss was trimmed to just 2.8% to $27.86. "The secondary mortgage markets are also currently experiencing unprecedented disruptions resulting from reduced investor demand for mortgage loans and mortgage-backed securities and increased investor yield requirements for those loans and securities," Countrywide said in a regulatory filing with the Securities and Exchange Commission.
"These conditions may continue or worsen in the future," the filing continued. "In light of current conditions, we expect to retain a larger portion of mortgage loans and mortgage-backed securities than we would in other environments."
Meanwhile, Washington Mutual (WM, news, msgs), also one of the biggest mortgage lenders, said this morning that its ability to raise liquidity by selling home loans will be "adversely affected" while difficulties in the mortgage market persist. Shares of WaMu, as the company is often called, were down as much as 7% early Friday, but the loss was trimmed to about 2.2% to $35.95 by the close.
Countrywide's announcement set off selling in Japan and Asia that spread to Europe.
Hedge fund problems worsen the fears
Thursday's fears were ignited by news that French bank BNP Paribas suspended valuing three hedge funds because of their exposure to the subprime mortgage market. The worries about the subprime spillover were compounded by a Wall Street Journal report that Goldman Sachs' (GS, news, msgs) Global Alpha hedge fund lost 8% in July alone -- putting the quant fund, which trades via a computer program, down 16% for the year. Later reports on Friday from Bloomberg News put Global Alpha's loss this year at 26% and 40% since July 31, 2006. (The S&P 500 is up nearly 14% over the same time period.)The subprime mortgage market has imploded over the past few months, with high-risk borrowers defaulting or being delinquent on their loans amid the housing slump and rising interest rates. That has spilled over to the credit markets, as banks have tightened their lending practices; investors are now fleeing risky investments and no longer buying mortgages backed by subprime loans.
| Fri. | Thur. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $71.47 | $71.59 | -$0.12 | -8.62% | 17.07% |
| Heating oil (per gallon) | $1.9712 | $1.9892 | -$0.0180 | -6.13% | 23.36% |
| Natural gas (per million BTU) | $6.8200 | $6.5860 | $0.2340 | 10.16% | 8.27% |
| Unleaded gasoline (per gallon) | $1.9548 | $1.9340 | $0.0208 | -8.69% | 22.01% |
SEC looks into banks' books
The SEC doesn't want to wait for the next company's "oops!" about the impact of the subprime market.The Wall Street Journal is reporting that the SEC is looking into the accounting books at Wall Street's biggest banks to make sure they are not hiding any losses resulting from the subprime meltdown.
Stock Charts (Year)
Merrill Lynch
Goldman Sachs
"I don't think they're going to find a whole lot," Bob Doll, Blackrock chief investment officer, said to CNBC this morning. "I know these companies are working hard to make sure these books and records" accurately show their assets.
ABN Amro deal in jeopardy?
Shares of Dutch bank ABN Amro (ABN, news, msgs) fell 0.7% to $46.80 Friday in New York on speculation that the credit problems could be an obstacle for a deal to buy the bank. The shares had been down as much as 10% in trading in Amsterdam, The Wall Street Journal reported.ABN has been the subject of a bidding war between Barclays (BCS, news, msgs) and a consortium led by Royal Bank of Scotland (RBS, news, msgs). In late July, ABN withdrew its support of Barclays' lower $89.5-billion bid from Barclays and said it would consider rival RBS' $98.1-billion bid.
But now the fate of any deal is up in the air. The recent market woes "jeopardize the ABN Amro deal," said Mike Trippitt, London-based analyst at Oriel Securities, according to Bloomberg News. "If you believe the market, the current share prices are telling you the deal isn't going to happen."
A deal with either partner would be the biggest banking deal ever; if it collapses, however, 3% of the total worldwide announced mergers-and-acquisitions volume of $3.3 trillion so far this year would be erased, The Wall Street Journal reported, citing Thomson Financial figures.
On a related note, Royal Bank of Scotland shareholders approved its bid for ABN Amro Friday.
| Close | Chg. for wk. | YTD chg. | |
|---|---|---|---|
| S&P 500 Index | 1,453.64 | 1.44% | 2.49% |
| Energy | 525.02 | 2.89% | 15.25% |
| Materials | 240.24 | 1.09% | 10.93% |
| Industrials | 351.80 | -0.94% | 9.04% |
| Consumer discretionary | 288.30 | 0.41% | -4.82% |
| Consumer staples | 279.08 | 2.21% | 3.98% |
| Healthcare | 394.75 | 0.89% | 1.55% |
| Financials | 448.47 | 3.76% | -9.46% |
| Information technology | 386.31 | 0.40% | 8.43% |
| Telecommunications | 166.97 | -2.31% | 7.63% |
| Utilities | 198.45 | 3.61% | 6.35% |
Nvidia profit jumps; supply problems hit stock
One stock with some good news Friday is graphics chipmaker Nvidia (NVDA, news, msgs).The company late Thursday reported a fiscal second-quarter profit of $172.7 million, or 43 cents per share, up from $86.7 million, or 22 cents per share, in the same quarter a year ago.
Excluding charges, the company earned $198.1 million, or 51 cents per share, handily beating Wall Street's estimate of 43 cents per share.
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Nvidia, which makes graphics chips for PC makers, said revenue will grow between 5% and 7% in the third quarter, with sales between $982 million and $1 billion.
Analysts had been looking for 10% growth and revenue of $939 million in the company's next quarter.
California Pizza Kitchen's not-so-tasty forecast
California Pizza Kitchen (CPKI, news, msgs) said late Thursday it earned $6.3 million, or 21 cents per share, in the second quarter, up more than 5% from $6 million, or 20 cents per share a year ago. The consensus estimate was 22 cents per share.But the company forecast third-quarter earnings between 3 cents and 4 cents per share because of rising cheese prices. Excluding charges, the restaurant chain said it expects to earn between 22 cents and 23 cents per share, below Wall Street's estimate of 25 cents per share.
The stock fell 6%, to $18.85 on the news.
By Charley Blaine and Elizabeth Strott
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