VideoThe financial world is heaving a collective sigh of relief going into this week, following the most disruptive disaster to hit the U.S. since 9/11.
The initial relief came after it became fairly apparent that the power outage that hit much of the U.S. and Canada on Thursday afternoon — leaving some 50 million people in the dark — was not an act of terrorism.
Moreover, the lights went out after 4 p.m., which meant that the major U.S. stock exchanges had already closed — limiting the impact on financial markets. All the major exchanges and markets were up and running on Friday, but many trading companies were still without power as the trading day began.
The upshot: extremely light trading. The New York Stock Exchange saw 562 million shares change hands on Friday, while Nasdaq saw 705 million shares traded. The trading volume on both exchanges was the lowest total over the past 52 weeks.
The major indices were all largely unchanged, with the Dow Jones Industrial Average up 0.13 percent on the day, the Nasdaq up 0.1 percent, and the S&P 500 up 0.2 percent.
Only the bond market, which is having troubles of its own, closed early. Despite an initial rush to short-term government paper following the start of the outage, at which point Chicago markets were still open, intermediate- and long-term Treasury issues continued their month-long decline. The yield on the 10-year note, at 4.53 percent, was the highest weekly close since July 2002.
Not surprisingly, the blackout upstaged the slew of economic reports which were issued late last week. The Consumer Price Index for July came in right where expected at 0.2 percent, core CPI at 0.2 percent (vs. an expected 0.1 percent), and industrial production at 0.5 percent (vs. 0.2 percent).
Given those numbers, markets are likely to start off the week with a relative spur in activity. Looking ahead, few important economic indicators are scheduled to come out this week, other than tomorrow morning's Housing Starts and Building Permit updates for July. These indicators, produced by the Commerce department's Census Bureau, will be closely watched. Investors are eager for signals of whether the recent backup in yields has had any impact on the housing market, which has been fueling the current economic recovery.
The market for initial public offerings will also take a break this week. "After several weeks of successful debuts by IPO candidates, investment bankers are going on an annual hiatus," which should last at least until Labor Day, reports IPO Monitor.com. New IPO filings announced late last week include AMIS Holdings, parent of AMI Semiconductor (which has so far not disclosed the offering size), Franklin Bank Corp., a Houston-based savings and loan holding company, which may offer as much as $115 million in common stock, according to Reuters, and biotech concern Cancervax Corp., which plans to raise $115 million.
Post 9/11 Disaster Spending Paid Off
Although this weekend's unprecedented power outage was a major inconvenience, it failed to cripple businesses. The reason? Companies have followed best practices by installing redundant systems, according to a report issued by Gartner Research on Friday.
Roberta Witty, a vice president at Gartner, pointed out that Sunguard, a major disaster recovery service based in Wayne, Pennsylvania, reported supporting 2,100 end-user positions from 62 customers at their recovery locations in the United States and Canada. "This is a fantastically low number of positions made by enterprises since Sept. 11, 2001 have clearly enabled them to respond to the crisis in an effective manner."
The preparedness of U.S. business for the summer blackout is seen by some as a vindication of the disaster-recovery systems that many companies deployed following 9/11. Simon Mingay, a vice president at Gartner, said: "A lot of organizations affected by the power outage will have spent a lot of money over the past two years on business continuity planning — always with the nagging doubt about the value they will derive from what is a 'grudge spend.' "
"There will be plenty of stories of generators failing, running out of fuel or bursting into flames," Mingay added. "But I think there will be a good news story here: Business continuity planning and emergency response in both public and private sectors have made tremendous progress, making the impact of the outage far less than it would have been two years ago."
Bad News Bonds
Before the black out hit, management at Charter Communications Inc. announced that the cable television company was shelving plans to refinance debt with a $1.7 billion issuance of bonds. The company's management said it was scotching the borrowing because of unfavorable conditions in the U.S. high-yield market. Management at Charter canceled the tender offer to repurchase a portion of its debt because "the dynamics and fundamentals of the high-yield bond market have changed materially," Reuters reported.
Charter, controlled by Paul Allen, a co-founder of Microsoft Corp., had originally hoped to extend maturities on part of its $19 billion of outstanding debt, giving the company more time before notes came due. Earlier this month, however, the company restructured the refinancing in a move that still left it with about $1 billion of debt maturing in 2005 and 2006. The planned Charter bond was going up a $1.3 billion offering from Dex Media West, a higher-rated issue being marketed this week with similar yields.
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