CLOSING WRAP-UP, August 31
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August 31, 2007
Stocks finished the month of August on a strong note. At the end of Friday’s trading session, the Dow Jones Industrial Average ($INDU) was roughly 120 points higher. For the week, the Dow gave up 21 and, for the month, the industrials added 145 points. The NASDAQ ($COMPQ) rallied for an impressive 31 gain on Friday. For the week, the NASDAQ added 20 and for the month gained 50.
On Friday, stocks got an early lift from soothing words from Fed Chairman Ben Bernanke. The head of the US Central Bank delivered a speech at the central bank’s annual conference in Jackson Hole, Wyoming and said that the Fed was ready to act to prevent further harm to the economy. That seemed to solidify recent hopes for a rate cut at the next FOMC meeting on September 18.
Reassuring words to subprime mortgage holders from President Bush also seemed to help early trade. At approximately 11:00 a.m. Eastern time, Mr. Bush delivered a speech and said that the government’s Federal Housing Administration [FHA] stands ready to help those that have fallen behind on mortgage payments by allowing them to refinance at more favorable rates. Mr. Bush is also seeking to help some of the struggling homeowners by making changes to the tax code and through stricter enforcement of predator lending laws.
Mortgage stocks rose on the day’s news. Accredited Home Lenders (LEND) rallied $2.74 to $9.05 after Lone Star Funds made a new offer to buy the firm for $214 million. Fannie Mae (FNM) and Freddie Mac (FRE), which were under pressure Thursday due to the recent credit concerns, closed higher. FNM added $2.21 to $65.61 and FRE rose $1.54 to $61.61.
Many of the favorite technology names finished the week stronger. Apple Computer (AAPL) continues its recent run on expectations the company will introduce a new iPod product announcement early next week. AAPL rose another $2.23 to $138.48. Research In Motion (RIMM) rose $2.54 to $85.41 on dubious takeover speculation. However, Dell Computer (DELL) gave back early gains despite reporting better than expected earnings and revenues. DELL fell 21 cents to $28.25 a share.
Energy-names saw relative strength as crude made another move higher. The Oil Service HOLDRS (OIH), which holds a basket of oil drilling companies, rose $3.20 to $178.71 and the AMEX Oil Index ($XOI), which tracks the major oil companies, added 17.43 to 1365.76. Crude gained after the National Hurricane Center said a well-organized tropical wave in the Atlantic Ocean could develop into a more serious tropical depression later in the day. Crude was also supported this week by data showing falling crude and oil gasoline supplies on Wednesday, along with better than expected economic data late in the week. Crude rose from $71.09 a barrel last Friday to $73.90 late in the day Friday.
A series of economic numbers released early Friday came in better than expected. A report released before the opening bell showed personal incomes rising .5% and spending increasing by .4% during the month of July. Economists were looking for both spending and incomes to increase by .3%. Meanwhile, the core Personal Consumption Expenditures [PCE] index, a gauge of inflation, rose just .1% last month. Economists were looking for a .2% increase.
The Chicago Purchasing Manager’s Index [PMI] topped expectations. The gauge of regional manufacturing activity rose to 53.8 from 53.4. Economists were looking for a decline to 53.0. A separate report on factory orders showed a 3.7% increase in July, which beat economist estimates for a 3.0% rise. Finally, the University of Michigan sentiment index edged up to 83.4 in late August from 83.3, compared to expectations for a decline to 83.
Bonds fell Friday, as stocks rallied and the day’s economic number surprised to the upside. However, losses were contained after Bernanke’s speech kept September rate cut hopes alive. The benchmark ten-year Treasury bond (September) fell 20/32nd in early trade, but settled down 8/32nds. The yield on the ten-year is now 4.54%.
For the stock market, the day held mostly good news. The strong economic data along with soothing words from Bush and Bernanke helped set the stage for an advance early in the day. From there, tech, oil, and financial stocks led the way before trading thinned out as players left early for the three-day break. Have a wonderful and safe Labor Day weekend.
Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
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