All three major indices continued their slide on this Friday. The Dow Jones Industrial Average Index became the latest major index that has breached its 52-week low after dropping 146 points for the day. As for the week, the market lost about 3% and extended its loss for the year to double digit. The most obvious explanation behind today’s drop was the disappointing Nonfarm Payroll report for February. Let’s take a look at the report first. Total Non-farm payrolls fell by 63K, the most in five years. Economists forecasted a small increase instead. Payroll numbers for the previous two months were also revised down. So far in 2008, we already have two consecutive months of decreasing payrolls and the latest weekly jobless claim trend pointed to a third one down the road. But it was an understatement that the weaker-than-expected job report should be solely responsible for today’s drop. Fed’s latest move of increasing the sizes of its Term Auction Facility to $50 billion from $30 billion may well contribute to some of the volatilities observed in the market today.
The news came out at around 8:15am and the futures market initially regarded it as good news and the Dow futures immediately shot by 100 points. However, traders then realized that the latest move by the Fed also means less chance of an inter-meeting cut. The futures dropped like a stone and at one point, the Dow futures were down by 150 points from up 100 points just minutes ago. This all happened within the 15 minutes before the Non-farm report was released. It seemed that the market was not convinced that more Term Auctions can solve the credit and liquidity issues currently perplexing the banking industry. However, we would like to point out that although it might take some time for this to work out, the size of the latest injection of liquidity into the banking system should not be ignored. At $200 billion as currently proposed by the Fed, it equals almost 15% of the total GDP of the US if we use a money multiplier of 10. Indeed, the financial sector was one of the best performers of the day.     
The US dollar was mixed against major currencies. Treasuries continued to rally as they were seen as the only safe place recently. The futures have fully priced in a 75bps cut in the Fed’s next meeting on March 18th. Commodity retreated a little bit from recent highs with noticeable weakness in the agriculture products. The VIX index, which is often used as a gauge of fear level in the market, didn’t change much. Indeed, we may see more volatility ahead.

It was a bloody day on Wall Street. Nasdaq, S&P500 and Russell 2000 all hit fresh 52-week lows while Dow was down by more than 200 points. Unlike previous few days, there was no late day reversal that had lifted the market from its lows. News on the economic front was mixed. The weekly jobless claims, which have worsened since the beginning of this year, actually came better than expected at 351K. But the continuing claims jumped by 29K to 2.83 million, which was the highest level since late September 2005. In a separate report, the pending home sales were in line with expectation. Retailers, meanwhile, reported mixed February sales results. Discount retailers such as Wal-mart and Costco exceeded Wall Street expectations while many mall-based apparel stores had worse-than-expected same-store sales results. However, the news that really drove the market down today came from the Mortgage Bankers Association. It reported that the US mortgage foreclosures rose to 0.83% of all home loans in the fourth quarter from 0.54% a year ago. That was the highest foreclosure level on record. Although the record foreclosure level shouldn’t be too surprising to market observers given the recent turmoil in the mortgage market, it is certainly not a piece of news to cheer about either.
All 10 major sectors were down by more than 1% for the day. The energy sector dropped by more than 2% despite a new record close in the crude oil price. Financials were under pressure throughout the day with many stocks hitting multi-year lows. For example, Citigroup was closed at another 9-year low. Freddie Mac, closed at a 13-year low. And even JP Morgan Chase, which was considered to be a relative winner in the sub-prime crisis, hit a 2-year low. The credit market remained under tremendous stress and treasuries seemed to be the only safe place. Although the Fed is widely expected to cut the interest rate by at least 50bps at its next meeting, traders are increasingly betting that such a cut will not be able to solve the tension in the credit market. The VIX index jumped 12% today and closed at 27.55. But at 27.55, it is still not high enough to trigger a panic-selling rally. Tomorrow we are going to get the most important economic report for the week, the Non-farm payroll report. Indeed, both bulls and bears should pay close attention.

All three major indices registered a modest gain for this Wednesday. It was the third day in a row that the market closed within 0.5% from the previous day’s although the intra-day action remained quite choppy. The news on the economic front was mixed. The ADP Employment, which is often used as a proxy to the closely watched Non-farm payroll report due on Friday, dropped 23K compared with a 15K increase expected. However, any deviation that is within 50K from the consensus is quite normal considering the overall size of the economy. The Factory Orders for January dropped 2.5%, in line with expectation. The most important report of the day, of course, was the ISM Services survey. It used to attract little attention compared to the ISM Manufacturing report. But last month’s report dramatically changed its importance as investors suddenly remembered that 80% of the US economy is actually from the service sector, not the often volatile manufacturing sector. Luckily, this month’s survey showed better results than expected. The headline number came at 49.3, a number that was still indicating a contraction but was better than the consensus of 47.5. More important, the Business Activity Index, which is the most important sub-component of the survey, came at 50.8 compared to 41.9 last month. That greatly relieved fears of an imminent recession in the service sector.
It was really a great day for commodity buyers. Gold hit new historical high. Oil hit new historical high. Heating oil hit new historical high. Corn hit new historical high. Even copper hit new historical high. Not surprisingly, commodity stocks were doing well across the board. Financials, on the other hand, were lagging as Ambac’s bailout plan was not as rosy as previously expected. The US dollar was mixed against major currencies and it was below $1.53 against the Euro for the first time during the early trading. Treasuries were sold off as inflation worries re-emerged after today’s rally in commodity price. The credit market remained quite tight. The LIBOR OIS spread, which is often used as a gauge of banking liquidity, jumped to more than 50 bps today compared to just 30 bps a week ago. It seems the Fed is going to have more tough works ahead.

For the second time this week, the market closed well off its lows heading into close. At its worst, the Dow was down by more than 220 points. The volume was quite heavy today. There was little economic news but several corporate news grabbed investors’ attention. After the bell yesterday, Intel trimmed its gross margin estimation for the quarter citing unfavourable memory sector pricing environment. However, the worst performer in the Dow index so far this year dropped only 1 cent for the day. Cisco and Amazon, on the other hand, provided positive remarks regarding their business and both stocks reacted quite nicely. In fact, Nasdaq was the best performer among the three major indices. Financials were under pressure for most of the day until late afternoon when positive news in Ambac revived the whole sector. Commodity stocks were the biggest loser of the day as commodities were sold off sharply amid profit taking. The CRB commodity index dropped almost 2% for the day and both gold and oil were down by more than 2%. Interestingly, the VIX index didn’t spike at all even after the Dow was down by more than 200 points and it was actually closed lower for the day. Although the market bounced off nicely from its lows, we are going to face some real test tomorrow as both ADP Employment report and ISM Services survey are scheduled to be released.

The market finished relatively flat on the first trading day of the new month. However, the Dow was down over 100 points at its worst before recovering towards to close. The news on the economic front was mixed. Not surprisingly, the ISM index dropped to 48.3 in February, indicating a contraction in the manufacturing sector. But that number still managed to beat expectation. It actually provided some relief to the market as some on the Street had feared a number in the range of 42 to 44 as recent dismal regional reports suggested. Separately, the Construction Spending dropped 1.7% compared with a drop of 0.7% expected. The worse reading was mostly driven by a decline in residential sector. For the rest of this week, the market is going to face several more tests from the economic front. Most noticeably, investors will pay close attention to the ISM Services survey on Wednesday(just a reminder: the previous month’s ISM Services report caused the Dow to tumble 370 points, the largest single day decline so far in 2008) and Nonfarm Payrolls on Friday.
Although the indices were little changed, the sectors were traded in split fashion. Commodity stocks were doing well following a new record in the CRB index --- both oil and gold hit new historical high again. Financials and technologies were under pressure. The former was dragged by continuing stress in the credit market, which fared poorly in February as ABS and CMS spreads hit records. The spread between high yield bond and treasury also hit a new multi-year high last week, which stands at close to 800bps now compared to around 350bps one year ago. Technologies were mainly dragged by the “Big Four”, namely Google, Bidu, Rimm and Apple. The “Big Four” had a great time in the second half of 2007 as hedge funds chased those stocks for better performance. Obviously money is flowing to somewhere else these days.