Wall Street Closes Sharply Higher On Friday But Down For The Week

Fri. August 22, 2008; Posted: 04:39 PM

(RTTNews) - Stocks turned in a standout performance on Friday, as a sharp drop in oil prices prompted investors to look for bargains. Strength in the financial sector also contributed to the buying interest on Wall Street.

Investors were encouraged when oil prices pulled back sharply during the day, more than offsetting the substantial price increase that was seen in the previous session. The pullback by the price of oil was partly due to a rebound in the value of the U.S. dollar.

After ending Thursday's trading up $5.62 at $121.18 a barrel, crude for October delivery closed down $6.59 at $114.59 a barrel. While the price decrease offset yesterday's increase, the price of oil still closed higher for the week.

Meanwhile, state-run Korea Development Bank is considering the acquisition of Lehman Brothers (LEH | Quote | Chart | News | PowerRating), according to a Reuters report on Friday. The speculation contributed to the positive sentiment on Wall Street.

Korea Development Bank, or KDB, reportedly said it is open to mergers or acquisitions of both domestic and foreign companies to cover up its weak areas as the Korean government intends to privatize the company by 2012.

Lehman was in the news earlier this week after it was reportedly considering the sale of all or part of its investment management business, including the Neuberger Berman unit. The company's investment management business is estimated to be worth about $8 billion to $10 billion. Lehman ended the session up 5 percent.

In other merger and acquisition news, King Pharmaceuticals (KG | Quote | Chart | News | PowerRating) announced that it has submitted a proposal to acquire Alpharma (ALO | Quote | Chart | News | PowerRating) for $33 per share in cash. The proposed price implies a total equity value of approximately $1.4 billion for 100 percent of the fully diluted share capital and an enterprise value of approximately $1.2 billion.

Brian Markison, CEO of King Pharma said, "The transaction would create a diversified specialty pharmaceutical company with greater commercialization capabilities, an expanded portfolio of pain management products and a strengthened pipeline which would include multiple platform technologies."

The companies also announced they will begin integrating Nymex' business operations in order to achieve about $60 million in expected cost synergies.

Verizon and Google hope to conclude their discussions in the next few weeks. A positive outcome from the discussions would make Google the default search provider on Verizon devices and give the internet company a share of the ad revenue.

On the economic front, Federal Reserve Chairman Ben Bernanke spoke at the Federal Reserve Bank of Kansas City's Annual Economic Symposium in Jackson Hole, Wyoming earlier in the day, calling the current policy and economic environment "one of the most challenging" in recent memory.

"Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment." Bernanke said.

The major averages saw notable gains throughout the session, closing just below their intraday highs. The Dow closed up 197.85 points or 1.7 percent at 11,628.06, the Nasdaq closed up 34.33 points or 1.4 percent at 2,414.71 and the S&P 500 closed up 14.47 points or 1.1 percent at 1,292.19.

With today's gains, the major averages partly offset the steep losses that were seen earlier in the week, although they still posted weekly losses. The Nasdaq showed a notable loss, ending the week down 1.5 percent, while the Dow and the S&P 500 posted weekly losses of 0.3 percent and 0.5 percent, respectively.

In overseas trading, stock markets across the Asia-Pacific region closed mixed on Friday after Wall Street finished mixed overnight. Meanwhile, the major European markets all moved to the upside, with the U.K.'s FTSE 100 index closing up 2.5 percent.

In the bond markets, treasuries ended Friday's session with notable losses. The benchmark ten-year note dropped sharply through the first two hours of the session, and traded in a loose range for the rest of the day. Subsequently, the yield on the ten-year note closed up 2.9 basis points at 3.867 percent.

Airline stocks are turning in some of the best performances, boosted by the sharp drop in oil prices. The Amex Airline Index closed up 8.2 percent, ending its recent downtrend. The index had been trending lower for the past four sessions, setting a three-week closing low on Thursday.

Within the airline sector, Continental Airlines (CAL | Quote | Chart | News | PowerRating) and UAL Corp. (UAUA | Quote | Chart | News | PowerRating) were two of the biggest gainers. Continental Airlines closed up 10.6 percent, compared to a 12.3 percent gain by UAL. Earlier in the day, the Federal Aviation Administration proposed an $18,000 penalty for UAL's United Airlines for two maintenance violations that occurred before a jet skidded off of a runway in February.

Financial stocks saw significant buying interest as well, boosted by the strength in Lehman Brothers. The Amex Securities Broker/Dealer Index ended the session up 3.3 percent, reversing the decline seen in the previous session. The S&P Bank Index closed up 2.8 percent.

Nonetheless, Freddie Mac (FRE | Quote | Chart | News | PowerRating) and Fannie Mae (FNM | Quote | Chart | News | PowerRating) saw a volatile trading session after Moody's Investors Service downgraded its ratings on the preferred stock the mortgage backers. Freddie Mac ended the day down 11.1 percent, while Fannie Mae closed up 3.1 percent. Other stocks that saw considerable strength include real estate, disk drive and retail stocks. The Morgan Stanley REIT closed up 3.5 percent, the Amex Disk Drive Index closed up 2.9 percent and the S&P Retail Index closed up 2.6 percent.

On the other hand, most resource stocks saw considerable weakness amid a drop in commodity prices. Gold stocks saw some of the most notable declines, with the Amex Gold Bugs Index falling 2.9 percent. Gold for December delivery closed down $5.50 at $833.50 an ounce.

Natural gas, oil, and oil service stocks closed lower as well. The Amex Natural Gas Index closed down 2.3 percent, the Amex Oil Index closed down 1.6 percent and the Philadelphia Oil Service Index closed down 1.8 percent.

Looking ahead to next week, there are several economic reports that may influence the markets, including several reports issued by the Department of Commerce. The Commerce Department will issue its report on durable goods, its preliminary GDP data and its personal income and spending report during the week.

Additionally, the Conference Board will release the results of its consumer sentiment survey, while the National Association of Purchasing Management - Chicago will release the results of its survey on the business conditions in the Chicago area.

In Fed news, the Federal Reserve will release the minutes from its previous meeting. Investors will look closely at the minutes for any clues as to how the Fed might react at its next meeting. Additionally, Atlanta Federal Reserve Bank President Dennis Lockhart will be at Georgia State University to speak about U.S. inflation.

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