What a Week: Closing Strength

Stocks end the week, month and quarter higher despite rising energy prices and dim economic news.
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Major stock proxies advanced solidly this week, as some of the post-Hurricane Rita relief rally combined with window-dressing to help lift the market, even as energy prices edged higher.

Apparent

end-of-quarter markups continued on Friday afternoon, even amid bearish economic reports and another gain in the price of crude oil. The

Dow Jones Industrial Average

rose 15.92 points, or 0.15%, to 10,568.70. The

S&P 500

gained 1.13 points, or 0.09% to 1228.81, and the

Nasdaq Composite

advanced 10.47 points, or 0.49%, to 2151.69.

Big gainers Friday included

Micron Technology

(MU) - Get Report

and

SafeNet

(SFNT)

, while weakness in

Wal-Mart

(WMT) - Get Report

and

Exxon Mobil

(XOM) - Get Report

restrained blue-chip proxies.

For the week, the Dow rose 149 points, or 1.4%; the S&P gained 1.1% and the Nasdaq rose 1.7%. Some of the quarter's best performing big-cap stocks, including

Apple

(AAPL) - Get Report

,

Valero

(VLO) - Get Report

and

Google

(GOOG) - Get Report

, added to their gains this week.

The weekly gains helped the third quarter finish on a positive note, even if September barely eked out any gains amid post-hurricane uncertainty. The Dow rose 0.8% in the month, the S&P gained 6.5%, while the Nasdaq fell fractionally. In the third quarter, the blue-chip average rose 2.9%, the S&P gained 3.1% and the Nasdaq advanced 1.6%; that's the first positive quarter of 2005 and the best third quarter for stocks since 1997.

Still, further short-term gains are questionable, presuming the influence of window dressing is unwound in the coming days. Furthermore, most of the quarter's gains were scored before Katrina's and Rita's devastation and the resulting uncertain economic outlook.

The week began with the confirmation that Rita paled in comparison with the devastation brought by Katrina, although it proved deadly and hit some energy production facilities. On Monday, equities remained buoyed by the same momentum that had led stocks higher as Rita was first downgraded to a Category 4 and then to a Category 3 hurricane.

Of course, in the light of day, the hurricanes hit on energy production and refining is still being felt. A total of 471 platforms and 33 rigs remain evacuated Friday, according to the U.S. Minerals Management Service. This has temporarily removed about 1.5 million barrels of oil per day, or 94.7% of the Gulf's daily oil production. Shut-in gas production is 7.941 billion cubic feet per day, or 76.7% of the gulf's daily gas production.

Not surprisingly, crude oil for November delivery finished the week above $66, more than 4% above its pre-Rita price. Stocks again danced around oil prices this week, but they still managed to rise, thanks to a new injection of money from managers wishing to garnish their portfolios with the best-performing stocks.

Window-dressing was evident throughout the week, and usually came during the final hours of trading, after the close of commodities (most notably energy) trading at 3 p.m.

One could say the trend was also visible as early as Tuesday, after another veiled warning about housing from

Federal Reserve

Chairman Alan Greenspan actually sparked a late rally.

"History cautions that extended periods of low concern about credit risk have invariably been followed by reversal, with an attendant fall in the prices of risky assets," Greenspan said sternly, which led the Dow to jump 45 points.

There was some relief that Greenspan didn't say anything new. But on the housing front, there were more signs of a cooling market Tuesday, as new-home sales dropped nearly 10% in August. The supply of new homes on the market rose to 4.7%, its highest level in mroe than five years, and price increases continued to slow.

Monday had brought news that existing-home sales had increased 2% in August. But the supply of existing homes on the market "has started to creep higher, indicating a topping out of sales may be in progress," says Sam Bullard, economist at Wachovia.

As do many other economists, Bullard believes that until mortgage rates rise above 6% (he leans more toward 7%), there won't be any significant slowing in the housing market.

But the process sure seems like it's under way. That isn't stopping the stocks of homebuilders to gain along with the broader indices this week. The Philadelphia Stock Exchange Housing Sector index gained 2.3%, led by homebuilders such as

KB Home

(KBH) - Get Report

and

Lennar

(LEN) - Get Report

, which also posted strong earnings this week.

The process of a slowing housing market will have broader indications for the economy, given that home equities have been used as cash machines by consumers over the past several years.

In a speech Monday, Greenspan had cheerfully expressed the belief that "the vast majority of homeowners have a sizable equity cushion with which to absorb a potential decline in house prices."

Consumers will need that cushion, especially after Friday's news that personal income fell 0.1% in August while spending was down 0.5%, the largest drop since November 2001. There was also confirmation this week of plunging consumer confidence in two separate surveys -- the Conference Board's and the University of Michigan's.

To view Gregg Greenberg's video take on today's market, click here

.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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