Friday, December 5th, 2008

Friday, 12/05/08

Market Update

Despite more bad economic news Friday morning, the stock indices slogged their way from deep in the red to finish with respectable gains for the day. Bond traders got little traction from the economic data and slid further into the red in the afternoon as stocks broke out of negative territory.

In late trading, the 10-Year Treasury Note was down by 1-13/32, raising its yield by 15 basis points to 2.70%; the Dow was up by 259.18 points to 8,635.42; and the Nasdaq was up by 63.75 points to 1,509.31.

The employment report released in the morning revealed a much larger than expected plunge in payrolls last month and the declines in the previous two months were deepened by data revisions. In addition, the unemployment rate rose to its highest level in fifteen years.

But the deteriorating state of the labor market is no secret and neither is the acceleration of mortgage delinquencies -- another item revealed Friday morning. The news did weigh against stocks but the gloom passed and buying picked up in the last hour of trading once the indices had broken into positive territory.

Market commentators note that stock traders may have concluded that the size of the recent job losses will likely spur more government stimulus measures. Atop the list of such measures is another rate cut by the Federal Reserve when its monetary policy committee meets on the 15th and 16th of the month. Such projections for rates often help Treasuries but they had already rallied hard since November 25. Aside from the lure of traders to take back some of their profits, bonds suffered from traders attempting to catch the rise in stocks.

The recovery in stocks was led by the financial sector. Positive guidance from Hartford Financial Services helped spur the sector. The Dow had been down by as much as 257.74 points or 3.08% but it managed to post a gain for the day of 3.09%. The S&P 500 was down by 3.17% at its lowest point of the day but finished with a gain of 3.65%. And the Nasdaq had been down by 2.82% but closed with a gain of 4.41%.

All three still took losses for the week. The Dow lost 2.19%, the S&P 500 lost 2.25%, and the Nasdaq lost 1.71%.

The employment news drove oil futures lower. A barrel of light, sweet crude for January delivery fell by $2.86 on the New York Mercantile Exchange to close at $40.81. For the week, the price fell by $13.62 and Friday's close was the lowest for a front-month contract since December 10, 2004.

Despite Friday's losses in the bond market, the yield of the benchmark 10-Year Note closed 22 basis points lower for the week (yield moves inversely to price). The yield has now fallen in five consecutive weeks for a cumulative total of 126 basis points . . . .