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Week in Review: August 31, 2007


A look back at the week that was...


Market Recap

The SPX reclaimed its 200 day moving average this week even as volatility increased in the face of Tuesday's 281 point sell off on the DJIA. Despite the fact that the commercial paper market remains under water, the lack of new bad news about credit markets and recent comments by Ben Bernanke and President Bush saying that the Federal Reserve and other government agencies will step in if needed have seemed to temporarily stabilize financial markets.

Critical levels remain overhead including last week's high of 1480 on the SPX. Broker dealers begin reporting on September 13 with Bear Stearns (BSC) and Lehman (LEH). Most of the bad news relating to credit markets and sub prime is already priced in so numbers that don't significantly miss expectations could ease investor anxiety. Next week important economic data to watch include the Federal Reserve's Beige Book on Wednesday and Unemployment numbers on Friday.

The "Four Sisters" Performance

ETF Watch

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Top Headlines

News home sales were down 0.2% to 5.75 mln for the month of July. Median home prices are also down 0.6% in the past year to $230,200, marking a 12th consecutive monthly decline. (8/27)

The FOMC released the minutes of their August 7th meeting on Tuesday afternoon. The committee showed no sign of removing inflation as their primary concern. Though committee members did acknowledge the possible impact of the current credit conditions and did not rule out taking action. (8/28)

Preliminary GDP reports came in at a 4% increase for the second quarter of 2007. Leading contributors to this gain were services, exports, nonresidential structures, government spending and software. (8/30)

The London Times reported this week that investment bank profits could fall by 70% if current credit conditions do not ease. The article cites the similarities of current conditions to those in 1998 when Wall Street profits fell. (8/30)

Core PCE inflation rose 0.1% for the month of July, with inflation year to date now coming in a 1.9%. Investors hope that these results will lower the Feds inflation concerns and allow for a cut in interest rates. (8/31)

On Friday morning, Fed Chairman Ben Bernanke offered remarks at the Kansas City Federal Reserve Bank's annual symposium in Jackson Hole Wyoming . In his speech Mr. Bernanke stated, "while it is not the job of the Fed to protect investors, the Fed will keep a close eye on conditions and will be willing to act to preserve growth." He also noted the Fed "stands ready" to provide more liquidity depending on market conditions and "will act as needed" to stem the impact of market turmoil. The Chairman did not mention the possibility of rate cuts as many in the markets have been hoping for. (8/31)

Earnings Snapshot

Dillard's (DDS) reported a loss of $25.2 mln for the second quarter this year. The retail giant blamed slow sales and necessary price cuts for the disappointing results. (8/29)

Dell (DELL) reported strong earnings this week, with second quarter profit jumping to $896 mln from last year's $502 mln. Stronger than expected notebook PCs sales contributed to the company's success this quarter. (8/30)

Sears Holdings (SHLD) reported second quarter income of $176 mln compared to $294 mln a year ago. The retailer credits an overall decline in sales for the disappointing results. (8/30)

Market Movers: Winners and Sinners

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