US stocks ended the week in volatile fashion as traders weighed up the first fall in US employment in 4½ years against a possible rescue plan for troubled bond insurers.
Investors welcomed a return of dealmaking activity as Microsoft made a $44.6bn takeover approach for Yahoo while bullish traders also cheered a pick-up in manufacturing.
A rebound on Friday capped a more encouraging period for US equities which chalked up their best weekly performance in almost five years helped by a swingeing mid-week interest rate cut from the Federal Reserve.
Financials and homebuilders enjoyed the best of this week's gains as traders priced in cheaper financing costs but energy and tech stocks underperformed after a slew of corporate earnings contained some notable disappointments.
The S&P 500 Composite gained 1.2 per cent to 1,395.41 on Friday. A rise of 4.9 per cent was the best weekly return for the S&P since March 2003. Since its intraday low on January 23 the index has climbed almost 10 per cent. However, the S&P still fell 6.1 per cent in January, its worst start to a year since 1990.
The Nasdaq Composite put on 3.7 per cent to 2,413.36 this week while the Dow Jones Industrial Average added 4.4 per cent over the period to 12,743.19.
"It's probably a bear market rally but I'm not sensing we're going to go too much lower," Martin Schulz, director of international equities at Allegiant Asset Management, said.
In attempting to gauge whether this week was simply a blip or a nadir for recent woes, traders pored over a collection of economic data which projected contrasting outlooks for the US economy.
The Labor Department's jobs report made miserable reading as US employers cut jobs for the first time since August 2003, posting an overall decline of 17,000 last month.
The fall was a big shock for economists who had predicted a gain of around 80,000 jobs. Of scant consolation was the unemployment rate, which dipped slightly from 5 per cent to 4.9 per cent.
"The idea that we have got outright job destruction in January is quite alarming," Robert Jukes, global investment strategist at Collins Stewart, said. "But I'm not going to get too pessimistic about this one number. We might look back next month and see it is not as bad as it looks right now."
The jobs report provided support to the Federal Reserve's decision this week to slash interest rates by 50bp, bringing total rate cuts in the last two weeks to an unprecedented 125bp.
An anaemic fourth quarter GDP reading and a slowdown in consumer spending were confirmation of the Fed's concern about downside risks to the US economy. The futures market priced in a high likelihood of another 50bp cut when the Fed next meets in March.
However, there were also some economic morsels for the bulls which encouraged traders to buy into weakness this week. The ISM manufacturing index showed factory activity expanded, rising to 50.7 from 48.4, versus expectations of a decline to 47. The data followed a larger-than-expected increase in December durable goods orders.
"Because of the weakening dollar I think the manufacturing sector is going to be the silver lining for the US economy," Mr Schulz said.
Perhaps the week's most significant market catalyst was the uncertain fate of bond insurers. Ambac Financial and MBIA, rose 14.4 per cent to $13.20 and $15.2 to $16.36 over the period on reports of nascent plans which may save the monolines from damaging credit downgrades and shield other financial firms from steep losses.
Added to the mix was a revival in the dealmaking rumour mill as traders bet weakened companies may become ripe for takevover. Shares in Washington Mutual soared 35.4 per cent to $21.82 this week amid persistent speculation it might be acquired by JPMorgan, up 10.6 per cent at $48.25.
The mining sector was shaken by Chinalco and Alcoa's equity raid on Rio Tinto, which put into doubt its proposed $130bn takeover by BHP Billiton and tantalised investors with the potential for further consolidation in the sector. Alcoa gained 11.7 per cent this week to $34.28.
Microsoft's $44.6bn offer for Yahoo offered up the prospect of a mega-merger in Silicon Valley causing Yahoo's shares to surge 26 per cent to $27.64 this week. However, Microsoft fell 7.5 per cent to $30.48 over the period as investors gave the deal a tepid reception.
Microsoft hopes a takeover will appeal to Yahoo's weary shareholders who were disappointed this week by a23 per cent decline in quarterly earnings and a cautious 2008 outlook. The announcement coincided with a disappointing earnings update from Google which fell 8.9 per cent to $515.90 marking a decline of 25 per cent this year.
Motorola sounded a brighter gaining 18.3 per cent to $12.69 this week after it said it was considering spinning off its mobile phone division.
No comments:
Post a Comment