Market Matters… A mixed week of good news and bad news. First the good news. The financial sector appears to be on the mend as earnings season brought several positive signs that the worst is over and soon “business as usual” will return to Wall Street (not sure “as usual” is such good news). Goldman Sachs easily surpassed analysts’ earnings estimates on solid trading revenues, while JP Morgan-Chase got a boost from its investment banking division to shatter the forecasts. Even Citigroup and Bank of America posted solid results (thanks to one-time gains), though both entities have many ongoing challenges to overcome before the Feds let them fend for themselves. Now the bad news. CIT Group, one of the nation’s primary small- to mid-sized business lenders may be heading to bankruptcy, thus, leaving panicked customers without a significant source of funding for their daily operations. After late hour negotiations failed, the gov choose to pass on another sizable bailout and allow true capitalism to play itself out. CIT turned to private firms (Goldman and JP Morgan to the rescue?) and bondholders to help devise a financing plan and avoid the fate of Lehman and others. Nervous retailers and manufacturers tried to line up alternative funding sources with hopes of dodging significant business interruptions. Bed Bath & Beyond and Wal-Mart are among CIT’s largest customer, though many are small independent operations. A CIT failure could prove devastating for those firms considered the lifeblood of American business.
In other earnings news, techs enjoyed another decent quarter as Intel easily bested expectations (that is, before that $1.45 billion antitrust fine) and IBM’s earnings grew by double-digits, while management raised its outlook for the next few quarters. Though both offered encouraging signs for the sector (and economy as a whole), Dell warned that lower margins are impacting its operations and Google experienced its lowest rate of revenue growth since going public five years ago. The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott and AMR (American Airline) both reported disappointing results.
The White House also experienced a “good news/bad news” week as House Dems began to push forward a major health care overhaul (much to the chagrin of high earners and small businesses). Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending (much to the chagrin of Prez O.).
Investors shrugged off the CIT developments and focused on positive earnings and economic data (see below). Stocks surged early on the Goldman news (and a ratings upgrade) and soared right through the technology reports. Technicians joined the fun as the S&P broke beyond resistance at 930, a strong sign for traders who monitor charts. Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq climbed to levels not seen since last October 2008, while fixed income suffered reverse “flight-to-quality” trades. Oil rebounded on the favorable market and economic signs (good news for energy producers; potentially bad news for gas consumers).
Weekly Economic Calendar While the debate over (expensive) health care overhaul rages on (complete with the latest CBO assessment), the treasury department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending at some point (at least, once the recession has ended). Analysts fear that interest rates ultimately will move higher (and the dollar lower) should the alarming trend continue and foreign investors may shy away from US securities. (They have been threatening for years.) For now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges. Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.
Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices as well and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture. On a positive note, weekly jobless claims fell to its lowest level since January; however, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoff are still very much on the rise. Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength. Even Dr. Doom himself (NYU professor Roubini), the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.
The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year. Most fed watchers do not see any change in the funds rate for the foreseeable future. On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to crease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal). The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.
On the Horizon… The ultimate fate of CIT could have major implications on the retail and manufacturing sectors as many related companies are reliant of the financing giant. While CIT is not nearly the household name of Citigroup or Bank of America, some analysts believe the government should not have walked away from a rescue package as small businesses could face sizable hardships should a bankruptcy ensue. A light week on the economic calendar gives way to the next round of earnings as Apple and Texas Instruments highlight the corporate releases, while consumer companies Coca Cola, McDonalds, and Amazon.com join the mix. Bernanke heads to Congress where several critics await. As for the health care debate, the August deadline seems less likely (thanks to the CBO), though the Senate has its two cents to add in the coming days. (Expect plenty of politicized talk about the ballooning deficit and the impact on small biz.)
Ron Brounes
www.ronbrounes.com
In other earnings news, techs enjoyed another decent quarter as Intel easily bested expectations (that is, before that $1.45 billion antitrust fine) and IBM’s earnings grew by double-digits, while management raised its outlook for the next few quarters. Though both offered encouraging signs for the sector (and economy as a whole), Dell warned that lower margins are impacting its operations and Google experienced its lowest rate of revenue growth since going public five years ago. The travel industry continued to struggle as consumers and business professionals delayed trips and Marriott and AMR (American Airline) both reported disappointing results.
| Market/Index | Year Close (2008) | Qtr Close (06/30/09) | Previous Week (07/10/09) | Current Week (07/17/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,447.00 | 8,146.52 | 8,743.94 | -0.37% |
| NASDAQ | 1,577.03 | 1,835.04 | 1,756.03 | 1,886.61 | +19.63% |
| S&P 500 | 903.25 | 919.32 | 879.13 | 940.38 | +4.11% |
| Russell 2000 | 499.45 | 508.28 | 480.98 | 519.22 | +3.96% |
| Global Dow | 1526.21 | 1,629.31 | 1,561.11 | 1,664.23 | +9.04% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.52% | 3.30% | 3.65% | +141 bps |
The White House also experienced a “good news/bad news” week as House Dems began to push forward a major health care overhaul (much to the chagrin of high earners and small businesses). Before the real lobbying could begin in earnest, the Congressional Budget Office (CBO) Director proclaimed the proposal would have no positive results on reducing costs or expanding coverage and would actually increase government spending (much to the chagrin of Prez O.).
Investors shrugged off the CIT developments and focused on positive earnings and economic data (see below). Stocks surged early on the Goldman news (and a ratings upgrade) and soared right through the technology reports. Technicians joined the fun as the S&P broke beyond resistance at 930, a strong sign for traders who monitor charts. Major indexes snapped a month-long losing streak and the tech-heavy Nasdaq climbed to levels not seen since last October 2008, while fixed income suffered reverse “flight-to-quality” trades. Oil rebounded on the favorable market and economic signs (good news for energy producers; potentially bad news for gas consumers).
Weekly Economic Calendar While the debate over (expensive) health care overhaul rages on (complete with the latest CBO assessment), the treasury department reported that the budget deficit ballooned beyond a record $1 trillion and seemed prime to move even higher if Congress cannot reign in spending at some point (at least, once the recession has ended). Analysts fear that interest rates ultimately will move higher (and the dollar lower) should the alarming trend continue and foreign investors may shy away from US securities. (They have been threatening for years.) For now, inflation seems very much under control, despite sizable jumps in both the retail and wholesale gauges. Though gasoline prices surged by 17% in June, prices have already begun dropping at the pumps and most economists do not expect a repeat performance in the months to come.
| Date | Release | Comments |
| July 14 | PPI (06/09) | Still no major inflation/deflation concerns |
| Retail Sales (06/09) | Increase most reflective of auto and gasoline sales | |
| July 15 | CPI (06/09) | Big jump in gasoline price seen as temporary |
| Industrial Production (06/09) | 8 th straight month of declines | |
| July 16 | Initial Jobless Claims (07/11) | Decline though auto closures blurred results |
| July 17 | Housing Starts (06/09) | Better than expected showing in starts and permits |
| The Week Ahead | ||
| July 20 | Leading Eco Indicators (06/09) | |
| July 23 | Initial Jobless Claims (07/18) | |
| Existing Home Sales (06/09) |
Though retail sales increased in June for the second consecutive month, much of the gain was related to the rising gas prices as well and consumers remain reluctant to part with their hard-earned income in light of the weakening labor picture. On a positive note, weekly jobless claims fell to its lowest level since January; however, naysayers claimed that much of the decline was due to calculation problems stemming from auto closures and layoff are still very much on the rise. Finally, the hectic economic calendar ended on a positive note as the housing sector showed renewed signs of a rebound as both new construction and permits for future activity experienced unexpected strength. Even Dr. Doom himself (NYU professor Roubini), the man best known for predicting the current crisis, reversed course and claimed the global economy would move out of recession by late 2009.
The minutes from the June Fed meeting showed that policymakers revised (positively) their forecasts for economic activity in 2009 and 2010, though they expect the unemployment situation to remain weak through next year. Most fed watchers do not see any change in the funds rate for the foreseeable future. On another note, numerous renown economists (about 200), including a few Nobel prize winners, called on Congress to crease the grandstanding and stop criticizing the Fed’s handling of the financial crisis and economic downturn (particularly Bernanke’s “tactics” surrounding the Bank of America/Merrill Lynch deal). The strongly worded letter by some of the nation’s sharpest minds stated that such politicizing could prove detrimental to the recovery.
On the Horizon… The ultimate fate of CIT could have major implications on the retail and manufacturing sectors as many related companies are reliant of the financing giant. While CIT is not nearly the household name of Citigroup or Bank of America, some analysts believe the government should not have walked away from a rescue package as small businesses could face sizable hardships should a bankruptcy ensue. A light week on the economic calendar gives way to the next round of earnings as Apple and Texas Instruments highlight the corporate releases, while consumer companies Coca Cola, McDonalds, and Amazon.com join the mix. Bernanke heads to Congress where several critics await. As for the health care debate, the August deadline seems less likely (thanks to the CBO), though the Senate has its two cents to add in the coming days. (Expect plenty of politicized talk about the ballooning deficit and the impact on small biz.)
Ron Brounes
www.ronbrounes.com
