News You Can Use from Gary Moore

Weekend Market Update

May 15-16, 2010

Stocks fell on Friday on a combination of weak earnings from retailers, Senate backing for limits on credit card fees and concerns over the sustainability of European public debt.

Bank and credit card companies' shares slumped a day after the Senate voted to limit fees charged on credit and debit card transactions. The limits added to fears that beefed-up financial reform legislation could hurt profits in the sector. Visa's stock fell almost 10 percent. Gary’s comment: Boo-hoo, I hate it for the credit card thugs.

Investors who had taken comfort in signs of strength in the U.S. economy were faced with more below-par forecasts from retailers such as Nordstrom and J.C. Penney, casting doubt on the strength of the recovery in consumer spending.

Daily volume was above average while declining stocks outnumbered advancers by a ratio of about 7 to 1 on the New York Stock Exchange. The CBOE Volatility Index, or VIX, a measure of market turbulence, surged 17.1 percent to 31.24, echoing moves when the stock market plunged last week.

Stocks had rallied sharply on Monday after news that European Union finance ministers had agreed to a $1 trillion aid package for debt-laden Greece. But the optimism was short-lived, with stocks down three days this week as market watchers said, not so fast---where is the money coming from and how is Greece going to repay it?

Despite Friday's sharp sell-off, all three major U.S. stock indexes scored their biggest weekly percentage advance in the last 10 weeks, thanks largely to Monday's gains.

For the week, the Dow rose 2.3 percent, the S&P 500 added 2.2 percent and the Nasdaq climbed 3.6 percent. However, after the recent volatility the Dow and the S&P 500 are up just 1.8 percent for the year, while the Nasdaq is up 3.4 percent.

As the initial optimism over moves to stem the euro-zone debt crisis ebbed, investors moved out of riskier assets. Global shares and commodity prices dropped sharply while the euro sank to an 18-month low against the dollar. Gold, a classic safety play, hit a record high before getting caught up in the commodities sell-off.

Shares of British Petroleum (BP) broke down on Friday after CEO Tony Hayward conceded the firm was caught off guard by the April 20 explosion on the Deepwater Horizon rig in the Gulf of Mexico, and President Obama met with cabinet members to consider further action that could be taken to contain the spill.

Hayward told journalists Wednesday night in Houston that it was “probably true” that the firm “should have done more” to prepare for such an emergency, according to an article Friday in the Wall Street Journal.

Estimates continue to creep up for the pace of the spill. A Purdue University researcher, analyzing underwater footage, said on NPR that the pace of the spill is 70,000 barrels per day, more than ten times the 5,000 cited by BP. and a Florida State University research team told the New York Times the rate of spill could be at least four or five times the 5,000 figure.

BP shares are off 23% since April 20, a loss of $44 billion in market capitalization.

Transocean (RIG), meantime, the owner of the Deepwater Horizon, was off $1.57, or 2.4%, at $65.12. Halliburton (HAL), which provided contract services in setting up and maintaining the rig, was off 90 cents, or 3%, at $28.11.

And Cameron International (CAM), which made the blowout preventer that may or may not have failed to prevent the blast, was down $1.10, or 3%, at $37, which is significant for a stock that had held up relatively well during most of this.

The 10-year U.S. Treasury note closed at a yield of 3.44%. Mortgage interest rates remained under generally downward pressure this week as money moved to Treasuries and mortgage-backed securities during spells of weakness in stocks.

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...by Gary Moore

Mortgage Planner, First Community Mortgage

...a subsidiary of First Community Bank

Cell: 615-579-8658   Toll-free fax: 866-321-6513

“Collective fear stimulates herd instinct and tends to produce ferocity toward those who are not regarded as members of the herd.” –Bertrand Russell

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