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From Briefing.com: 4:57 pm Weekly Wrap

Given the week that just concluded, it's a good thing we're heading into a 3-day weekend. The market was as volatile as ever. Once again, the financial sector had a lot to do with that. It wasn't just the financials, though. Commodities were also at the center of things, only this time they were there in a negative light.

To begin, there was little question that there was a sense of fear Monday morning after it was announced over the weekend that the Federal Reserve stepped in and brokered the sale of investment bank Bear Stearns (BSC) to JPMorgan Chase (JPM) for the remarkable sum of just $2.00 per share. In turn, the Fed also announced a 25 basis point cut in its discount rate to 3.25% and created a new lending facility to provide financing to participants in securitization markets - its first weekend action in more than 25 years.

The Bear Stearns news was stunning in every respect as it was clear the deal had rescue written all over it. Accordingly, it sparked a wave of worry that other financial firms might follow suit and warn of solvency issues.

In expected fashion, the stock market opened the week on a much lower note, but strikingly, the sense of fear soon dissipated and the market began to rebound in a sense of appreciation for the Fed's efforts to squelch what would have been an epic sell-off had it not carried out the action that it did. The S&P 500 still dropped 0.9% in Monday's session, but it had been down as much as 2.4%; meanwhile, the Dow rebounded from a 1.6% decline and finished with a slight gain.

The stock market's resiliency on Monday set a good tone entering Tuesday's session that rang loud and clear for the bulls after both Goldman Sachs (GS) and Lehman Bros. (LEH) delivered better than expected (or was it better than feared?) earnings reports and clarified that they are in good shape - the best ever in Goldman's case - from a liquidity standpoint.

Stocks shot higher on the news, all but dismissing a higher than expected reading in the core Producer Price Index and triggering a short-covering rally that produced huge gains for many of the financial issues. Lehman Bros., for instance, closed Tuesday at $46.25, up 130% from its low in Monday's trade.

The Fed, again, played a supportive role in Tuesday's rally, having pleased the market with an announcement that it agreed to cut the fed funds rate 75 basis points to 2.25% and the discount rate another 75 basis points to 2.50%. Although the Fed noted there is some increased uncertainty surrounding the inflation outlook, it still believes inflation will moderate. The downside risk to growth, though, remains the Fed's main concern and it was implied in the statement that the Fed stands ready to cut rates again if necessary.

The Fed's decision put the finishing touches on what was already a healthy rally. The S&P 500 advanced 4.2%, scoring its biggest one-day percentage move since October 2002 while the S&P financial sector soared 8.5%, marking its biggest one-day gain since March 2000.

Wednesday's trade started out well enough as the market took stock of Morgan Stanley's (MS) better than expected earnings report and word from The Office of Federal Housing Enterprise Oversight that it was relaxing its excess capital requirement for Fannie Mae (FNM) and Freddie Mac (FRE) in an effort to increase liquidity in the U.S. mortgage market.

The bullish tone early Wednesday began to turn on the heels of a broad-based, and material, sell-off in the commodity arena. That sell-off, incidentally, coincided with a big rally in the Treasury market, particularly at the front end of the yield curve, which fostered concerns the commodity sell-off was a function of forced selling by accounts needing to deleverage or having to meet margin calls.

The recognition that the dollar jumped in the midst of the commodity sell-off supported the notion of a deleveraging trade. Either way, it was a striking move in the commodity arena that saw gold prices drop 5.9% in a single session, wheat prices plunge 7.7%, and oil prices dip 4.5%. The stock market for its part took cover in the wake of the disconcerting action, with the S&P 500 falling 2.4%.

It didn't get much better for most commodities on Thursday either. The dollar continued to rebound and gold prices slipped another 2.7%, ending the week at $920.00 an ounce after starting the week just shy of $1000.00.

Unlike Wednesday, the stock market didn't buckle amid the commodity retreat on Thursday, which was also a quadruple-witching options expiration and S&P rebalancing day. In fact, it rallied around a number of items that included brokerage upgrades of General Electric (GE), Fannie Mae and Freddie Mac, a better than feared regional manufacturing survey and a bold call from Punk Ziegel analyst Dick Bove who proclaimed the financial crisis is over.

Investors in financial stocks rallied around the latter call. The S&P financial sector jumped 6.9%. For the shortened week, it gained a whopping 11.9%.

Fittingly, the Fed also had a hand in Friday's rally that reclaimed nearly all of Wednesday's losses for the broader market. Its influence came into play following an afternoon announcement that it plans to expand the list of eligible collateral in next week's Term Securities Lending Facility to include agency collateralized-mortgage obligations (CMOs) and AAA/Aaa-rated commercial mortgage-backed securities (CMBS), in addition to the previously announced AAA/Aaa-rated private-label residential mortgage backed securities (RMBS) and OMO-eligible collateral.

In essence, the Fed's willingness to broaden the collateral it will accept in the first of two auctions was seen as a constructive measure that will provide some temporary relief, sooner rather than later, for financial firms that have been weighed down holding the difficult-to-trade securities.

Enjoy your weekend!

--Patrick J. O'Hare, Briefing.com

 
 Index      Started Week Ended Week Change % Change   YTD  
 DJIA         11951.09    12361.32  410.23    3.4 %  -6.8 %  
 Nasdaq        2212.49     2258.11   45.62    2.1 % -14.9 %  
 S&P 500       1288.14     1329.51   41.37    3.2 %  -9.5 %  
 Russell 2000   662.90      681.42   18.52    2.8 % -11.0 %

4:20 pm : On Thursday, the stock market closed the shortened week on a high note. The major indices surged more than 2% in heavy trading, and finished near their best levels of the session. Financials led the way higher, thanks to a pair of upgrades and news that the Fed is expanding its previously announced plan to increase liquidity.

The financial sector (+6.9%) was the driving force behind this session’s strength. It got off to a strong start after Fannie Mae (FNM 34.30, +3.59) and Freddie Mac (FRE 32.58, +2.68) were upgraded to Outperform from Market Perform at Keefe, Bruyette & Woods.

Financials, and the market, got a further boost after the New York Fed announced modifications to its new Term Securities Lending Facility (TSFL). The TSFL auctions will now allow schedule 2 collateral, instead of the schedule 1 collateral previously proposed. Schedule 2 collateral will now include collateralized mortgage obligations (CMOs) and AAA rated commercial mortgage-backed securities

In other words, the Fed will be lending banks highly liquid Treasury securities in exchange for less liquid assets. Banks will now be able to use a wider range of collateral than previously announced. The first auction will take place on March 27 with an offering size of $75 billion for a term of 28 days. Up to $200 billion in loans have been authorized. This is a positive development as it temporarily relieves holders of the difficult to trade securities.

The thrifts & mortgages group (+10.3%) was a standout for the third day in a row. The group has spiked 53% from its low on Monday. Investment banks & brokerages was also a leader with a 11.2% gain.

The March Philadelphia Fed, a regional manufacturing survey, also gave stocks a boost. The survey came in at -17.4, which is higher than the previous reading of -24.0. Economists expected a reading of -18.0. The stock market spiked on the release even though the number was only slightly better than expected. Since the reading is below zero, it reflects contraction in manufacturing in the Philadelphia region. The survey has shown contraction for the last four months.

Other economic data were bearish, although the market shrugged off the news. Jobless claims for the week ended March 15 rose to 378,000 from the prior reading of 356,000. Economists expected 360,000 claims.

In a separate report, February leading indicators fell 0.3%, which was in-line with expectations. The prior reading, however, was revised lower to -0.4% from -0.1%.

Also of note, General Electric (GE 37.49, +1.90) posted a healthy 5.3% gain after being upgraded to Buy from Sell at Merrill Lynch.

Nine of the ten sectors trended higher. Consumer discretionary (+3.2%) was the second best performing group behind financials, thanks to a 4.9% surge in retailers. Materials (-0.5%) was the only sector to finish in the red, as the Commodity Index (-1.7%) has slid four of the last five days.

The strengthening dollar (+0.84%) weighed on commodities, with oil sliding -1.0% to $101.54 per barrel, and gold giving up 3.5% to $912.22 per ounce. Gold is down 11.8% from its all-time non inflation adjusted high of $1033.90 per ounce that was reached on Monday.

For the week the S&P advanced 3.2%, the Dow gained 2.2% and the Nasdaq advanced 2.1%. The CRB Commodity Index slipped 8.3%, while the dollar gained 1.5%.

The stock and bond markets will be closed tomorrow in observance of Good Friday. Trading will resume on Monday.DJ30 +261.66 NASDAQ +48.15 NQ100 +2.1% R2K +2.6% SP400 +2.4% SP500 +31.09 NASDAQ Dec/Adv/Vol 971/1867/2.67 bln NYSE Dec/Adv/Vol 825/2338/2.77 bln

4:06PM Electroglas misses by $0.02, misses on revs; guides Q4 revs below consensus (EGLS) 1.50 +0.06 : Reports Q3 (Feb) loss of $0.11 per share, excluding non-recurring items, $0.02 worse than the First Call consensus of ($0.09); revenues rose 18.4% year/year to $11.6 mln vs the $12.5 mln consensus. Co issues downside guidance for Q4, sees Q4 revs of $12.5-13.5 mln vs. $13.60 mln consensus.

9:19AM Newspaper Notable Mentions (WIRES) : Reuters.com: DELL plans to buy $23 bln worth of components from China this year, 28% more than in 2007, the co said on Thursday... WSJ: Information technology provider TietoEnator received a $1.72 bln bid from Cidron Services, a co owned by private equity fund Nordic Capital Fund VI, but said the bid was too low. The deal values represents a 38% premium to Wednesday's closing price... DigiTimes: In order to defend its entry-level notebook market, INTC is planning to launch two 65nm Merom-based processors for its Centrino 2 platform, according to sources at motherboard makers... TSM is said will boost its 8-inch wafer fabrication capacity at its Songjiang, China fab to 40,000 wafers per month amid the upcoming completion of Atmel equipment move-in, according to sources at equipment makers.