Following yesterday’s volatile session the major averages opened significantly lower on Friday, despite a positive earnings report out of General Electric (GE).
News that the Bush administration officials are considering a plan for Fannie Mae (FNM) and Freddie Mac (FRE) to have the government subject both enterprises to legal control — saw the shares of the companies’ stocks plunge sharply as fear intensified. Oil made matters worst, breaking out to new all time highs of $147.25 – on growing worries about threats to supplies from Iran, renewed militant activity in Nigeria and a strike of Brazilian oil workers next week.
However, market averages caught a modest lift off the lows as GSE’s showed some signs of stabilization. The lift however, persisted only briefly.
The indices headed sharply lower at midsession with the INDU being down by as many as 230 points. The major average fell for the first time since fiscal ’06, below 11.000 level.
The market kept revolving for the remainder of the session around the GSE’s capital adequacy and credit loss outlook, besides potential future of dilutive capital raises.
In other news
– On the economic front: The Commerce Department on Friday reported that the May trade gap balance totaled a $59.8 billion deficit, attributable mostly to the declining dollar. Economists expected a trading deficit of $62.5 billion.
– Consumer confidence was stronger than expected. July Consumer Sentiment Survey from the University of Michigan came in at 56.6, versus the 55.5 economists expected.
– General Electric (GE) announced 2Q earnings results that matched the consensus estimate, generating $0.54 per share. The company reaffirmed its 2008 guidance for earning in the range of $2.20 and $2.30 per share.
– According to reports, Inbev began talks with Anheuser-Busch cos., and has sweetened its takeover offer by 7.7 percent to $70 a share, topping its initial bid of $65 per share and ending company’s fight to remain independent.
– Shares of Lehman Brothers (LEH) plunged more than 14%. Co’s credit default swaps on debt widened 55 basis points to 380 basis points, according to Phoenix Partners Group.