US rallies late in the day

Late session rally on Friday help market trim its losses for the week

The third week of November, 2008 followed its previous two weeks in the sense that market witnessed extreme volatility in Wall Street and huge swings between indices. Once again indices finished in the red but losses would have been huge for the week that ended on Friday, 21 November, 2008 but for a late session rally on the very same day. Dour economic reports pointing their fingers towards a weak economic condition was the main reason for buyers to stay away once again. Federal Reserve cut its GDP growth estimates for the next few quarters in the US economy.

Uncertainty about the timing of an economic recovery and cautious guidance coming from most companies also unnerved the stock market once again. The three major indices ended the week with good losses.

The Dow Jones Industrial Average lost 451 (5.3%) for the week to end at 8,046.42. Tech - heavy Nasdaq lost 132.5 points (8.7%) to end at 1,384.35. S&P 500 lost 73.26 points (8.9%) to end at 800.03.

Uncertainty about the future of Citigroup was the main reason for this week's volatile movement. The stock price declined by 66% to a mere $3.5 per share as the company announced that it will cut 52,000 jobs in next few months.

Meanwhile at Washington, senators continued to mull over the bailout issue of the three auto giants in US - GM, Chrysler and Ford.

During the week, The Federal Reserve released its 2008 and 2009 projections for GDP. The report showed that the Fed reduced forecasts for GDP growth and inflation. For 2008, the Fed expects the economy will grow between 0.0% and 0.3%, down sharply from its previous forecast of 1.0% to 1.6%. The 2009 forecast now calls for growth between -0.2% and 1.1%, down from the previous forecast of 2.0% to 2.8%. The Fed also raised its unemployment forecast.

Fed officials felt real GDP would contract somewhat in the first half of 2009 and then rise in the second half of the year.

On Friday, 21 November, stocks at Wall Street ended with substantial gains. The Dow Jones industrial average closed up 494 points or 6% at 8,046, the Nasdaq gained 68 points or 5% to 1,384 and the S&P 500 surged 47 points or 6% to 800. Despite the strong gains, stocks still finished the week 8.4% lower due to heavy losses earlier in the week.

The rally was primarily fuelled by the news that President-elect Barack Obama would nominate New York Federal Reserve President Timothy Geithner as Treasury secretary. Indices were hovering in the red since the morning mainly due to weakness in the financial sector. Some news regarding the future of US economy pepped up investor sentiments later in the day.

Noticeable weakness came from Citigroup. Citi is reportedly weighing strategic options regarding its future, but claims it wants to keep itself together. Other than that, shares of GE slipped to decade low levels.

The tech sector showed some resilience, despite weakness in Dell. Dell posted better-than-expected earnings per share results for the third quarter, but got there by cutting costs, rather than by growing revenue.

Among major economic reports for the week, weekly initial jobless claims surged 27,000 to 542,000. Continuing claims jumped to 4.012 million from 3.903 million and reflected the difficulty of finding a new job.

The good economic news this week was found in the industrial and inflation reports. Industrial production increased 1.3% in October. Producer prices declined 2.8% in October while consumer prices declined 1%.

Housing starts continued to decline, falling 4.5% in October from the prior month to a seasonally adjusted annual rate of 791,000 units. Building permits, meanwhile, declined 12% to a seasonally adjusted annual rate of 708,000. The starts number provides another weak data point for fourth quarter GDP calculations

Among the earning news of the week, H-P came out with good earning report and gave an upward guidance in this grim economic scenario.

For the year, Dow, Nasdaq and S&P 500 are down by 39.3%, 47.8% and 45.5% respectively.