Friday’s Market Recap: US Treasury’s Plan To Back Up Fannie And Freddie Could Be Announced This Weekend

Brian Clionsky
updated | Author's Website

Big news after the close of the market today. The U.S. Treasury is finalizing plans to back up Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the severely struggling mortgage financing giants, who have struggled with billions of dollars in losses due to soured loans. The plan could be announced as early as this weekend, and may include capital injection as well as changes to senior management. Although it was earlier stated that the two government-sponsored entities had enough capital and reserves to stay in business without a government bailout, it appears this was in fact false, and the fears about Fannie and Freddie may not have been overblown.

Job Data Disappoints

As anticipated, The Labor Department delivered more disappointing job data today, acting as the catalyst behind today’s poor market opening and corroborating fears of a weakening economy. The Labor Department reported that payrolls shrank by 84,000 in August. Analysts’ expected payrolls to shrink by only 75,000 in August. The unemployment rate rose to 6.1%, a five-year high, topping off eight straight months of job cuts. U.S. workers have lost nearly 550,000 jobs this year. Many economists’ are weary of a Fed rate hike, citing America’s lost jobs as justification for the Fed to keep interest rates low indefinitely. The manufacturing sector was hit the hardest, losing 61,000 jobs, the worst job loss in the industry since 2003. Manufacturing was followed by business and professional services which cut 53,000 jobs. Surprisingly enough, a few sectors added jobs in August, as government payrolls increased by 17,000 and education & health services increased by 55,000 jobs. Average hours of work per week remained at 33.7% flat from July, but overtime fell to 3.7 hours per week in August from July’s mark of 3.8 hours per week.

The markets recovered from the dismal job market news and pulled off their steep lows fueled by a big push in financials and consumer staples, as investors hunted bargains in each of these sectors. The Dow Jones Industrial Average (^DJI) , which fell to an early daily low of 11,037.85, finished the day up 32.73 points, or 0.29%, to close at11,220.96. For the week the Dow fell 324.67 points or 2.81%. The Nasdaq (^IXIC) fell slightly today to close at 2,255.88, down 3.16 points or 0.14%, pulling up from its early low of 2,216.99. The week-long weakness experienced in the Technology sector improved slightly today, partially due to the technology sector faring far better than most with respects to the job market. For the week, the Nasdaq was down 146.23 points, or 6.09%, as it seemed to be a week long plaguing of technology stocks. The S&P500 (^GSPC) closed the day at 1,242.31, up from its intraday low of 1,217.23, and up 5.48 points or 0.44% from yesterday. On the week the S&P500 fell 5.80% or 70.6 points.

Commodity & Currency Markets

Oil prices slipped to a five day low today as investors feared that the sub-par unemployment rate would equate to Americans cutting back on their energy use to save money. Oil ended the day at $106.57 per barrel down $1.32 or 1.22%. The dollar is currently trading at 0.7012 vs. the Euro, gaining on the Euro for a fifth straight day and regaining many investors’ confidence in the Dollar. The dollar broke its four day streak of loses to the Yen and improved to at 107.87 vs. the yen. The 10 year Treasury note increased today up 0.0170 points or 0.47% to 3.660%. Gold fell 0.04% or $0.30 today to settle at $797.60 per ounce, falling for the fifth straight day after early trading looked as though it would finally snap out of its current downward trend.

A New Problem

The Mortgage Bankers Association announced today that more than 4 million American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June. This represents 9% of the mortgage market, up from 8.1% in the January-March quarter. There is a lot of concern about a second wave of mortgage defaults possibly flooding the market in 2010, as the sour source in the mortgage market has clearly shifted from sub-prime loans to adjustable rate mortgages.

Let’s take a look at how the individual sectors of the S&P 500 performed for the week. This is not the performance of the sector SPDRs, but an actual sector performance analysis as reported by the S&P 500.

In order of top performing for the week 9/2/08-9/5/08 (% change):

1. Financials closed the week at 289.96 up 1.53%, or 4.37 points.
2. Consumer Staples closed the week at 292.36 up 0.82%, or 2.38 points.
3. Consumer Discretionary closed the week at 238.45 down 0.76%, or 1.83 points.
4. Telecommunication Services closed the week at 128.21 down 2.66%, or 3.5 points.
5. Health Care closed the week at 367.76 down 2.82%, or 10.71 points.
6. Industrials closed the week at 300.85 down 3.92%, or 12.26 points.
7. Materials closed the week at 228.18 down 5.89%, or 14.28 points.
8. Utilities closed the week at 178.92 down 6.03%, or 11.46 points.
9. Information Technology closed the week at 335.73 down 6.47%, or 23.21 points.
10. Energy closed the week at 514.88 down 7.40%, or 41.19 points.

Disclosure: None

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