Weekly Wrap
Last Update: 07-Sep-07 16:38 ET
After starting the holiday-shortened week on a strong note, U.S. stocks finished the week lower amid growing concerns that problems in the housing and credit markets are spreading to the job market and weighing on the overall economy.
The stock market rallied on Tuesday – the first day of trading after Monday’s Labor Day holiday – with all three major indexes rising more than 1%, after a report from the Institute for Supply Management showed manufacturing activity expanded in August. The ISM index national survey on manufacturing conditions dipped to 52.9 last month from 53.8 in July. That was slightly below expectations, but remained steady at a level that reflects moderate growth.
Meanwhile, favorable reports on
Apple (AAPL) and
Yahoo! (YHOO) helped boost the Technology sector and the tech-heavy Nasdaq index, which jumped 47 points, or 1.81%, during the session.
Stocks retraced their gains on Wednesday, however, due to further signs of weakness in the U.S. housing market. The market’s concerns about the health of the economy were exacerbated by the National Association of Realtors’ Pending Home Sales report, which showed pending sales of previously owned homes fell by a record 12.2% in July to its lowest level in six years.
Also,
Costco (COST) reported disappointing same store sales results for August, reflecting increasing pressure on U.S. consumers and further weighing on investor sentiment.
Stocks reversed course on Thursday, as weekly jobless claims and second quarter productivity and unit labor costs came in stronger than expected. Meanwhile, several retail chains, including
Wal-Mart Stores (WMT) and
Target Corp. (TGT), reported monthly sales figures that topped analysts’ expectations, and the ISM Services index held steady at 55.8 and still pointed to growth in the services sector.
Still, trading was light as investors awaited the Labor Department’s August employment report on Friday, which proved disappointing and exacerbated worries about the health of the economy under the weight of a deteriorating housing market and credit market problems.
The Labor Department’s report showed that payrolls fell by 4,000 in August, the first decline since August 2003 and well below analysts’ expectations of a gain of 110,000, while the unemployment rate held steady at 4.6% as expected. The negative impact of the payrolls number was exacerbated by the downward revision to both the June and July numbers totaling 81K. The other components of the jobs related data, average work week and hourly earnings, were in line with expectations and had little impact.
The major averages plummeted in the wake of the report, with the Dow Jones industrials falling nearly 250 points, or 1.87%, during Friday's session. The broader S&P 500 index fell 25 points, or 1.69%, while the Nasdaq composite index declined 49 points, or 1.86%.
For Investors, the report provided further insight into the economy’s performance in August amid persisting weakness in the housing market and turmoil in the credit markets, triggered by the meltdown in the sub-prime lending industry.
The soft trend in payrolls probably reflects business caution given the turmoil in the financial markets, but in our opinion does not signal a recession. The payroll trend is clearly weak, but even flat payroll growth correlates to 2% real GDP growth given the long-term trend of 2% productivity growth. Weaker economic growth is of concern, but the weak payroll number will increase expectations that the Fed will lower interest rates at the September 18 FOMC meeting. It provides additional cover for the Fed to take that action.
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Richard Jahnke, Briefing.com
http://www.briefing.com/GeneralCont...or&ArticleId=NS20070907163806AfterHoursReport
