Friday, October 17, 2008

Weekly Rewind - Week 42 (10/17/08)

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Did it feel like the markets' best weekly performance in over five years to you? In five days of extreme trade that saw fear play violently in both directions, the S&P 500 (SPY) ended up +5.3% as credit markets began a nascent healing process after unprecedented global stabilization efforts (AP - Markets Soar). In contrast, neither the Russell 2000 nor Emerging Market indices were able to gain any traction (IWM -0.3%; EEM -0.6%).

While there was certainly more news than I can do justice to here in this brief summary, ranging from the Morgan Stanley/ Mitsubishi deal (Marketwatch - $9B Stake), to proposed direct investments by the Treasury into our banks (Washington Post - Plan Hits Snag), it was undoubtedly a week that will be studied and written about for decades to come.

In one the week's biggest statistical stories, the VIX options volatility index set a record close of 70 on Expiration Friday, remaining some +27% above its 15-day moving average. Amazingly, this was well below its Thursday high of 81. Sectorwise, last week's best performers, Transports and Real Estate, were this period's sole losers (IYT -1.8%; IYR -9.3%). Meanwhile, Healthcare stocks (XLV) posted the strongest aggregate results of +8.1%.

Next Week's Influences

Week 42 of 2008 will feature a relatively light economic calendar, including: Leading Economic Indicators, Initial Jobless Claims, and Existing Home Sales. Market watchers will continue to closely monitor credit indicators (Calculated Risk - Credit Indicators), the Lehman Brothers CDS delivery due on the 21st, the Washington Mutual Bank CDS auction set for the 23rd (The Street - Cost Set at Auction), and the progress of the GM-Chrysler merger talks (AP - Talks Gain Momentum). Of course, earnings are also now in full swing.

It may interest you to know that past periods following (T +1) gains of this week's magnitude (T 0) back through 1993 (SPY inception) were characterized by more moderate performances, as follows:

However, with continued forced selling pressure likely, the possibility of defaults upon the impending swap deliveries, and potential reinvestment of all that cash post-delivery, more fireworks ahead seem inevitable. A glossary of Weekly Rewind terms and statistics has been posted here for your reference. Enjoy the weekend.

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