Markets Rewind: A Week to Be Studied for Decades to Come

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 (MS) / 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 of 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 (LEHMQ.PK) 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.

• Yahoo! - U.S. Earnings Calendar


• Yahoo! - U.S. Economic Calendar

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.

Disclosure: None