CLOSING WRAP-UP, July 27
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July 27, 2007
Another round of selling leaves major market indices down sharply on the week. The Dow ($INDU) gave up 208.10 points, or 1.54 percent, to close at 13,265.47. The S&P 500 ($SPX) fell 23.71 points, or 1.60 percent, to 1,458.95. The NASDAQ ($COMPQ) declined 37.10 points, or 1.43 percent, to close at 2,462.24. Volume was strong on the session with the NYSE trading 2.27 billion shares and the Naz turning over 2.38 billion shares. Market breadth was negative by a 10-to-23 and 9-to-22 margin on the Big Board and Naz respectively.
The week ended on a down note Friday despite a stronger than expected GDP report. Traders continue to fret over the credit market situation with many deals put on hold this past week. The fact is that lenders want a higher premium to offset what they see as more risk following the subprime debacle. Of course, stocks did rise sharply the past six months, so a correction isn’t surprising. Nonetheless, considering economic and earnings news has been mostly positive, the bulls are shocked to see stocks fall so sharply.
GDP in the second quarter rose 3.4 percent, which was slightly higher than estimates. The GDP deflator, a measure of inflation, was up just 2.7 percent, which was well below expectations. The problem with the data is that consumer spending wasn’t very strong, up just 1.3 percent. Of course, traders were seeing the glass half empty this week.
News that Cadbury Schweppes (CSG) extended its deadline for bids due to the problems in the credit market added to an already volatile situation. There also were rumors that Fannie Mae (FNM) and Freddie Mac (FRE) might have $4.7 billion in unrealized losses due to subprime mortgages. FNM shares fell 2.8 percent on the news with FRE falling 2.88 percent.
Crude prices didn’t help stocks Friday either with oil up $2.07 a barrel to $77.02. With the GDP showing strong growth in the quarter, concerns about demand pushed commodity prices higher. Though inflation data has shown some declines of late, consumers are still mindful of high energy prices and this could hurt spending down the road. In related news, oil giant Chevron (CVX) reported earnings that were 24-cents above estimates. CVX reported profits of $5.4 billion compared with $4.4 billion in the prior year. Even so, CVX shares lost 2.6 percent on the session.
After seeing the major market indices fall more than four percent this past week, the bulls are hoping the selling has ended and that traders will be in the mood to buy next week. However, until the credit market situation is worked out, volatility in likely to remain.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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