Weekly Market Commentary 10/9/08

“SEC Charges Goldman with Fraud; S&P 500 Breaks Winning Streak”
April 19, 2010
Up to date in less than 2 minutes:
Last week, stocks were mixed with the S&P 500 falling, halting the longest rally in a year, after allegations of fraud at Goldman Sachs Group Inc. (“GS”) heightened concern the government will crack down on Wall Street and wiped out the week’s advance. On the week the Dow, NASDAQ, and Russell 2000 all increased +0.2%, +1.1%, and +1.7%, respectively, while the S&P 500 dropped -0.2%.

Equity Performance Table
Last Week
Year to Date
Last 52 Weeks
Dow Jones Industrial
S&P 500 (Large Caps)
NASDAQ (Technology)
Russell 2000 (Small Caps)
International Stocks (EAFE)
Dow Jones Total Stock Market (Broad Market)
Interest Rates
Prime Lending Rate
Interest Rate Bias
Short-Term = Neutral; Intermediate Term = Rising; Long-Term = Rising
90 T-bill Rate
90 Day LIBOR
TED Spread
30-Year Mortgage Rate
15-Year Mortgage Rate
5-Year Adjustable Mortgage Rate
30-Year Treasury Yield
10-Year Treasury Yield
5-Year Treasury Yield
2-Year Treasury Yield
Notable Recent Dividend Increases
Abbott Labs (“ABT”)
Colgate-Palmolive (“CL”)
ConocoPhillips (“COP”)
The Coca-Cola Co. (“KO”)
PepsiCo (“PEP”)
Qualcomm Inc. (“QCOM”)
Kimberly Clark (“KMB”)
United Technologies (“UTX”)

Now, all the details……………………
Goldman Sachs sank -10% this week, the most since March 2009, after the Securities and Exchange Commission sued the bank and one of its vice presidents for misstating and omitting key facts about a collateralized debt obligation.  The -1.6% retreat in the Standard & Poor’s 500 Index on Friday erased gains earlier in the week spurred by better-than-estimated results at companies from Intel Corp. (“INTC”) to CSX Corp. (“CSX”) and JPMorgan Chase & Co. (“JPM”).
The S&P 500 slipped -0.2% on the week to end at 1,192.13.  Before Friday, the index was headed for a seventh straight weekly advance, the longest since May 2007.  The Dow Jones Industrial Average rose 21.31 points, or +0.2%, to end at 11,018.66.  The Russell 2000 Index of small companies jumped +1.7%.
Goldman Sachs, the most profitable firm in Wall Street history, erased its advance for 2010 and ended the week at $160.70, the lowest price since March 3.  The SEC said the bank created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against them.  Goldman Sachs said the claims are “completely unfounded.”  Paulson wasn’t accused of wrongdoing.
Google Inc. (“GOOG”) fell -2.8% to $550.15.  The owner of the world’s most popular Internet search engine reported profit that missed some analysts’ estimates, underscoring the rising cost of pursuing growth in new markets.
Raw-material producers in the S&P 500 collectively dropped -1.9% for the biggest retreat among 10 groups.  Alcoa Inc. (“AA”), the largest U.S. aluminum producer, fell -3.3% to $13.91 on first-quarter sales that missed the average analyst estimate.
The allegations against Goldman Sachs were announced as Obama tries to pass the most sweeping overhaul of financial regulations since the 1930s.  The proposed legislation would mean stronger oversight of derivatives trading and hedge funds, a consumer financial-protection authority and a system for unwinding large systemically important firms when they fail. Stay tuned.
Treasuries rose, sending yields lower. The benchmark 10- year note’s yield dropped to 3.76% from 3.88%.
The MSCI EAFE Index was up +0.2% last week. The Americas were down -0.3% with Brazil down -2.8%, Mexico down -0.7%, and Canada down -0.9%. Europe was down -0.7% with Germany down -1.1%. Asia-Pacific was up +0.2% with Australia up +0.7%, China down -0.5%, Hong Kong down -1.6%, India down -1.9%, and Japan down -0.9%.
The Baltic Dry Index, a measure of shipping costs for commodities, ended the week at 3,009, up from the prior week’s level of 2,913. The index tracks transport costs on international trade routes and is a good leading indicator of economic activity. The index reached a high of 11,793 on May 20, 2008 and a low of 663 on December 5, 2008. The index reached a recent peak of 4,661 set on November 11, 2009.
The TED spread measuring the difference between LIBOR and Treasury bill rates, which rose as high as 464 basis points, is currently in more of a normal range of 15 basis points. The TED spread is a gauge of the willingness of banks to lend to one another. The lower the TED spread the more willing banks are to lend with each other.
Oil dropped -2.0% last week and closed at $83.24 per barrel. The average price of unleaded gasoline increased to end at $2.862 per gallon per April 18th data provided by AAA.
Gold dropped -2.1% last week and closed at $1,136.30 per troy ounce. The dollar was down -0.3% last week as measured by the U.S. Dollar Index with that index closing at 80.824. The Euro was stronger against the dollar closing at $1.35/Euro.
Microsoft Corp. (“MSFT”), Apple Inc. (“AAPL”), Johnson & Johnson (“JNJ”) and Coca-Cola Co. (“KO”) are among the 129 companies in the S&P 500 scheduled to report quarterly results next week.  Total profit for the stock index is estimated to rise 35% during the first three months of the year, according to average analyst estimates compiled by Bloomberg. Look for economic reports this week on the leading indicators, producer prices, new home sales, durable goods orders, and weekly initial jobless claims.
Sources: Barron’s, Bloomberg, The Wall Street Journal, The New York Times, ValueLine.