Reply #110: ending the mess with no Dewey decimals

[UpInArms]

Dow 13,595.10 27.23 (0.20%)
Nasdaq 2,810.38 15.55 (0.56%)
S&P 500 1,509.65 1.21 (0.08%)
10-Yr Bond 4.291% 0.07

NYSE Volume 4,285,059,000
Nasdaq Volume 2,473,391,250

4:25 pm : Market bulls got the news they were waiting for on Friday when the October jobs report turned out to be better than expected. The data fueled some opening gains, but then was quickly relegated to an afterthought amid renewed concerns about the financial sector's prospects.

Once again, Merrill Lynch (MER 57.28, -4.91) was at the epicenter of the concerns as it got rocked by a Wall Street Journal article that suggested the investment bank was working with hedge funds in an attempt to delay taking losses on its mortgage-backed securities. In essence, the article insinuated that Merrill Lynch might be trying to hide the losses from investors, which evoked bad memories about the Enron scandal.

As if the Journal article wasn't enough, Deutsche Securities downgraded Merrill Lynch to Hold from Buy amid its concerns that new write-downs for collateralized debt obligations could approach $10 billion.

Merrill Lynch eventually defended itself against the Journal article, saying it had no reason to believe that any such inappropriate transactions occurred since that would be a clear violation of Merrill Lynch policy.

The defense helped stem some of the bleeding in the financial sector, which was down as much as 3.4 percent at one point, but it didn't do much to aid Merrill's stock. On a related note, there were rumors circulating that Goldman Sachs (GS 229.60, -10.61) might be announcing a large write-down, but Goldman Sachs told CNBC those rumors were not true.

By the end of the session, the financial sector (-1.5%) managed to cut its losses in half. Famed value investor Bill Miller of Legg Mason played a part in that happening as he was quoted as saying some of the greatest gains over the next five years will be in securities people are panicked about today (i.e., financials).

Also, there was a late report from CNBC, citing Dow Jones, that Citigroup (C 37.73, -0.78) was going to be holding an emergency board meeting over the weekend. Details of the meeting were not mentioned, but it was assumed that it might lead to a change in leadership at the troubled bank. That assumption was reflected in Citigroup's stock price, which pared its losses in the final hour.

The rebound in the financials helped the broader market recover from its morning lows, which were established with losses of 121, 21 and 16 points, respectively, for the Dow, Nasdaq and S&P. By the closing bell, though, all three major indices were back in positive territory.

Outside of the financial sector, there were several pockets of strength. The technology sector (+0.9%) was one such area as it refused to relinquish its leadership post thanks to the relative strength of large-cap issues.

The energy sector (+1.1%) was the best-performing area Friday, as it garnered support from a 2.6 percent gain in oil prices to $95.93 per barrel.

The jump in oil prices came in the wake of the jobs report that suggested the U.S. economy is still holding up quite well despite the troubles in the housing and credit markets. That consideration translated into an expectation that demand for energy will remain high.

With respect to the employment report, the government reported that nonfarm payrolls rose 166,000 in October while September payrolls were revised down slightly to 96,000 (from 110,000). The unemployment rate held steady at 4.7 percent as did the average workweek at 33.8 hours. Hourly earnings, meanwhile, were up just 0.2 percent versus an expectation for an increase of 0.3 percent.

Despite the solid growth indication from the employment report, the Treasury market moved higher as it benefited from a flight-to-quality trade that followed the downturn in the financial sector. Separately, the dollar lost ground again Friday, which provided a boost to a number of commodities, including gold which traded up 1.9 percent to $815.20 per ounce.
DJ30 +27.23 NASDAQ +15.55 SP500 +1.21 NASDAQ Dec/Adv/Vol 1482/1488/2.46 bln NYSE Dec/Adv/Vol 1720/1516/1.72 bln

3:30 pm : Going into the last half-hour of trading, the market continues to be volatile as the Nasdaq makes it back into the green. The VIX Index, which measures volatility, is up 3.1% today.

Meanwhile, Bloomberg.com reports that the risk of owning the debt of Merrill Lynch (MER 55.85, -6.35) and Citigroup (C 36.98, -1.53) rose to the highest in at least five years on speculation that losses from the mortgage-market collapse will worsen.

Next week, the market will have another barrage of earnings reports to process. Cisco (CSCO 34.42, +0.24) is the headliner in the coming week, although the reports from AIG (AIG 57.91, -1.39), Time Warner (TWX 17.75, -0.25), Walt Disney (DIS 33.56, -0.24), News Corp. (NWS.A 21.05, -0.29 ), Qualcomm (QCOM 41.41, +0.13), General Motors (GM 36.82, -0.46) and Ford (F 8.82, +0.32) will also command added attention.

The economy will remain a hot topic of debate with Fed Chairman Bernanke adding to the debate on Thursday with testimony on the U.S. economic outlook before the Joint Economic Committee. DJ30 -34.51 NASDAQ +7.36 SP500 -5.88 NASDAQ Dec/Adv/Vol 1723/1225/2.04 bln NYSE Dec/Adv/Vol 2032/1190/1.29 bln