YAHOO[BRIEFING.COM]Weekly Recap - Week ending 27-Feb-09

Financials remained in focus for another week, as the U.S. government now owns 36% of the common stock of Citigroup (C), the Obama administration unveiled its Capital Assessment Program, which includes stress tests for the 19 largest domestic banks, and economic data showed continued deterioration.

But while the larger banks were under pressure yet again, the financial sector as a whole advanced 2.0% this week. That cannot be said for the rest of the market, as an 11.4% plunge in Health Care and an 8.3% decline in Industrials helped the S&P join the Dow at new 11-year lows; 734.52 and 7033.62, respectively. Overall, the S&P lost 4.5% this week, the Dow lost 4.1%, the Nasdaq lost 4.4% and the Russell lost 5.3%.

On Monday, the major averages looked to open the week on a strong note. Strength in financials, specifically Citi, led to a higher open on reports the government may convert its preferred shares in the financial services giant into common shares. It would own no more than a 40% stake, which helped ease the prior sesssion's nationalization fears.

However, the stock market trended downwards throughout the session, eventually closing sharply lower. The managed care group plunged after the Center for Medicare & Medicaid Services released its preliminary 2010 Medicare Advantage Rates, showing a capitation rate increase of only 0.5%, well below Street expectations. Financial sector fears also remained in focus despite the Citi reports, helping the sector lose gains of as much as 4.6% to close 3.0% lower.

The stock market rebounded on Tuesday, despite a piece of disappointing housing data. The S&P/CaseShiller House Price Index showed a year-over-year decline of 18.6%, larger than the -18.3% consensus estimate.

The big corporate development of the day came from JPMorgan (JPM), who reduced its dividend to $0.05 from $0.38 to retain $5 billion in additional common equity per year, while also saying first quarter performance to date has been "solidly profitable", even after "significant" additions to reserves, and roughly in line with analyst expectations. Shares of JPM rallied 7.7% that day.

Tuesday also was the beginning of Federal Reserve Chairman Ben Bernanke's Semiannual Monetary Policy Report before Congress. He told the Senate Banking Committee that day that there is "considerable economic uncertainty," but the recession may end in 2009 and the economy may recover in 2010.

Wednesday proved to be a volatile day, as the major averages resumed their downward trend in the morning before rebounding in the early afternoon after the Obama administration announced its Capital Assessment Program, only to roll over in the last 20 minutes of the session.

A second piece of disappointing housing data contributed to the downward move in the morning. Existing Home Sales slipped 5.3% in January to an annualized rate of 4.49 million units. That compared negatively to the consensus estimate of 4.79 million units and is the lowest level since 1997.

But the market rebounded temporarily in the afternoon after the CAP announcement. The terms state that capital provided will be in the form of a preferred security that is convertible into common equity at a 10% discount to the price prevailing prior to February 9. That capital will be provided to banks who undergo a stress test that says they need those funds to perform their duties in the financial system.

Thursday proved to be a similar session to Monday, as the market opened higher only to trend lower throughout the day. It was initially supported by a rally in Europe, specifically UK banks, after the government there unveiled its long awaited asset protection scheme. But bleak economic data and another plunge in managed health care stocks did little to support the rally, and the market eventually turned lower.

Durable Goods Orders ex-transportation dropped a larger-than-expected 2.5% in January, more than the -2.2% consensus estimate, while the prior month was revised sharply lower to -5.5% from -3.6%. The market also received its third consecutive piece of disappointing housing data as New Home Sales dropped to an annualized rate of 309,000 units in January. That was below the 324,000 consensus estimate, 48.2% below the year-ago level and marked a new low for records dating back to 1963.

Meanwhile, managed health care names came under pressure for a second time this week after President Obama announced he will cut Medicare spending as part of his health care plan.

That brings us to today's session, which proved to be no better than Thursday. The S&P and Dow set those 11-year lows this morning on heavy pressure in the financial sector after Citi surprisingly suspended dividends on its preferred shares and announced a $9.6 bln fourth quarter goodwill impairment, all while confirming the government would convert its preferred shares in the company to common stock.

What's more, fourth quarter GDP was revised sharply lower, to -6.2% from the Advanced reading of -3.8%, which was well below the -5.4% consensus estimate. The decrease primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment (i.e. most of the major components). While this data is essentially old news, seeing that we're two-thirds of the way through the first quarter, it still resonates as a startling reminder of how quickly things turned. Unfortunately, the current trends don't paint a much better picture.

One corporate headline from the afternoon, as General Electric (GE) cut its long-standing dividend to $0.10 from $0.31 to save nearly $8.9 bln a year. Shares of GE initially rallied on the news, but a reduction at this juncture -- it doesn't kick in until the third quarter of 2009 -- will feed into concerns that there won't be a quick recovery for GE, or the global economy, given its multinational presence.

The Economic Calendar is extremely light next week, that is until Friday when the Bureau of Labor Statistics releases the highly-anticipated Change in Nonfarm Payrolls figure for February.

--David M Campione, CFA, Briefing.com

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	7365.67	7062.93	-302.74	-4.1	-19.5
Nasdaq	1441.23	1377.84	-63.39	-4.4	-12.6
S&P 500	770.05	735.09	-34.96	-4.5	-18.6
Russell 2000	410.96	389.02	-21.94	-5.3	-22.1

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