Market Update Friday, January 18, 2008

4:20 pm : Stock market bulls did not have much to cheer about on Thursday. Stocks posted a large loss, finishing near their session lows. As has been the case for 2008, worries about further financial market turmoil and a slowing economy spurred the selling interest.
Stocks took a nose dive after the Philadelphia Fed Index hit the wires at 10:30 ET. The regional manufacturing survey came in at -20.9, its lowest number since October 2001. The consensus estimate predicted a reading of -1.5. Since the number is below zero, it reflects a contraction in manufacturing in that region.
The report has weighed on the broader market and especially the materials sector (-5.4%), as the poor reading raised concerns about growth. Conversely, the Treasury market rallied in a flight-to-quality trade.
The financial sector (-4.7%) also played a large role in Thursday's weakness.
Merrill Lynch (MER 49.53, -5.56) reported a much larger than expected loss. Merrill posted a loss of $10.3 billion in the fourth quarter, or $12.57 per share, which fell well short of the expected loss of $4.93. The dismal results were largely due to an $11.5 billion write-down for subprime and CDO exposure and a $2.6 billion credit valuation adjustment related to its hedges with financial guarantors.
In regard to financial guarantors, bond insurer Ambac (ABK 6.24, -6.73) was clipped 52% after Moody's announced this morning it is putting Ambac's Aaa credit rating under review for a downgrade. Ambac stock also got pummeled on Wednesday, after the company announced it is cutting its dividend and is planning to raise $1 billion to shore up its capital position in the face of a $5.4 billion pretax write-down. Other bond