Market Matters… First the good news …September broke the historic trend of negative equity returns as the Dow (+2.2%), S&P 500 (+3.5%), and Nasdaq (+5.6%) each performed quite nicely during the month. Now the bad news…the “bears” exploded out of the gate to start October as some weaker-than-expected data renewed concerns about the strength (or lack thereof) of any economic recovery. The eternal optimists point out that investors simply may have been taking some profits following the best quarter for stocks since late 1998. During the three month period, the three primary indexes climbed about 15%, while the small-cap Russell 2000 performed even better (+18.8%).
Boardroom confidence has been one main reason for the surge in equities over the past few months and such activity remained in vogue during the week. Abbott Labs moved forward with global expansion plans and announced its desire to purchase Belgian-based Solvay for $6.6 bln. Xerox added to its services segment by agreeing to acquire Affiliated Computer Services for $6.4 bln. Comcast and General Electric have been in discussions regarding a partnership or even an IPO that involves GE’s NBC Universal. Latin American beverage company Femsa (Tecate, Dos Equis) also seems interested in merging its beer operations with a major player and analysts speculate about SABMiller or Heineken as potential partners in a $9 bln transaction. Meanwhile GM is poised to shut down its Saturn brand as a prior deal with Penske blew up during the week. Sticking with autos, the end of “cash for clunkers” apparently meant the end of booming activity on the domestic car lots as GM (-45%), Chrysler (-42%), Toyota (-16.1%), and Ford (-5.1%) all reported declining sales for September.
In financial news, Bank of America’s Ken Lewis has had more than enough being the whipping boy and poster child for all that is wrong with the industry. He announced his plans to retire by the end of the year. (What’s the BofA/Merrill severance package look like these days?) The FDIC may be asking for banks to prepay certain fees to help accommodate future failures (you mean there will still be more?) as its protection reserves moved “into the red.” The Treasury announced that Invesco and TCW have raised over $1 billion (combined) in private funding and were the first firms to participate in the much-heralded Public Private Investment Program (PPIP) to buy underwater toxic assets from banks’ balance sheets.
The week began on a high note for investors as the deal-making euphoria continued. However, some less than stellar reports about manufacturing, labor, and consumer confidence (see below) set off a round of profit-taking (hopefully, that’s all it was) and both the Dow and S&P 500 suffered their worst day in three-months late in the week. Oil moved up and down as traders digested economic and supply data, but $70/barrel seems to be that comfort spot for crude these days. Fixed income once again became the safe-haven for some and naysayers emerged again to proclaim an end to the recent run-up that has seen stocks soar 50%+ since early March. (Then again…weren’t they sharing the same negative sentiments at the beginning of September too?)
Economically Speaking… Weekly Economic Calendar
Just when it was starting to feel safe to venture back out to the malls, buy a new/used house, and ride the next rebound all the way to prosperity…the week in the economy surely brought analysts and investors back down to earth (for now). Apparently all is not totally well among the nation’s manufacturers as both the Chicago Purchasing Managers index and the ISM index fell in their latest reports. While the national survey still recorded a reading above 50 (that indicates sector growth), it fell from the August report and analysts are now concerned any rebound may fizzle before its gets started. Likewise, factory orders dropped by the largest amount in the past five months. Consumer confidence slid in September, prompting new (old) concerns among the nation’s retailers, though consumer spending in August actually rose by its best percentage since October 2001 (thanks in part to “clunkers”).
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Shifting to labor, over 260,000 jobs were eliminated from the economy in September, bringing the total losses to 7.6 million since the recession began back in late-2007. The unemployment rate hit 9.8% (on its road to 10% and beyond) and nervous employees seemed inclined to hold off on major purchases (except those discounted cars) until their individual situations stabilize. In (more positive) housing news, the S&P/Case-Shiller home price index rose for the third consecutive month and the National Association of Realtors reported that sales of existing homes climbed for the seventh straight month as first-time buyers took advantage of the federal tax credit that is scheduled to expire in November. The economy (GDP) as a whole contracted in the second quarter (-0.7%), though the pace was a tad better than the prior report indicated (-1.0%).
On the Horizon... A new quarter means another earnings season and Alcoa (October 7) is officially now on the clock. Bear in mind, the major debacle among financials and the credit crisis started in earnest last September 2008 and many analysts expect the comparative earnings numbers to begin looking better in this next round of releases. Based on the latest deal-making activity and renewed optimism coming out of the corporate boardrooms, they may just be right. In fact, while some “negative nellies” continue to predict “doom and gloom” and an eventual retest of the March lows, others look at positive signs from the IPO and M&A worlds as reasons that the equity rally could very well continue. While news from the Fed was relatively quiet during the week, investors continued to dissect each and every policy-maker’s comments for indications of when they may begin unwinding certain programs. The latest auto sales data showed how quickly activity can cease once “clunkers” ended, and Fed watchers remain skeptical about other sectors after stimuli like homeowners’ tax credits go away as well.
Ron Brounes
http://www.ronbrounes.com
| Market/Index | Year Close (2008) | Qtr Close (06/30/09) | Previous Week (09/25/09) | Current Week (10/02/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 8,447.00 | 9,665.19 | 9,487.67 | +8.10% |
| NASDAQ | 1,577.03 | 1,835.04 | 2,090.92 | 2,048.11 | +29.87% |
| S&P 500 | 903.25 | 919.32 | 1,044.38 | 1,025.21 | +13.50% |
| Russell 2000 | 499.45 | 508.28 | 598.94 | 580.20 | +16.17% |
| Global Dow | 1526.21 | 1,629.31 | 1,884.05 | 1,832.87 | +20.09% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.52% | 3.33% | 3.22% | +98 bps |
Boardroom confidence has been one main reason for the surge in equities over the past few months and such activity remained in vogue during the week. Abbott Labs moved forward with global expansion plans and announced its desire to purchase Belgian-based Solvay for $6.6 bln. Xerox added to its services segment by agreeing to acquire Affiliated Computer Services for $6.4 bln. Comcast and General Electric have been in discussions regarding a partnership or even an IPO that involves GE’s NBC Universal. Latin American beverage company Femsa (Tecate, Dos Equis) also seems interested in merging its beer operations with a major player and analysts speculate about SABMiller or Heineken as potential partners in a $9 bln transaction. Meanwhile GM is poised to shut down its Saturn brand as a prior deal with Penske blew up during the week. Sticking with autos, the end of “cash for clunkers” apparently meant the end of booming activity on the domestic car lots as GM (-45%), Chrysler (-42%), Toyota (-16.1%), and Ford (-5.1%) all reported declining sales for September.
In financial news, Bank of America’s Ken Lewis has had more than enough being the whipping boy and poster child for all that is wrong with the industry. He announced his plans to retire by the end of the year. (What’s the BofA/Merrill severance package look like these days?) The FDIC may be asking for banks to prepay certain fees to help accommodate future failures (you mean there will still be more?) as its protection reserves moved “into the red.” The Treasury announced that Invesco and TCW have raised over $1 billion (combined) in private funding and were the first firms to participate in the much-heralded Public Private Investment Program (PPIP) to buy underwater toxic assets from banks’ balance sheets.
The week began on a high note for investors as the deal-making euphoria continued. However, some less than stellar reports about manufacturing, labor, and consumer confidence (see below) set off a round of profit-taking (hopefully, that’s all it was) and both the Dow and S&P 500 suffered their worst day in three-months late in the week. Oil moved up and down as traders digested economic and supply data, but $70/barrel seems to be that comfort spot for crude these days. Fixed income once again became the safe-haven for some and naysayers emerged again to proclaim an end to the recent run-up that has seen stocks soar 50%+ since early March. (Then again…weren’t they sharing the same negative sentiments at the beginning of September too?)
Economically Speaking… Weekly Economic Calendar
Just when it was starting to feel safe to venture back out to the malls, buy a new/used house, and ride the next rebound all the way to prosperity…the week in the economy surely brought analysts and investors back down to earth (for now). Apparently all is not totally well among the nation’s manufacturers as both the Chicago Purchasing Managers index and the ISM index fell in their latest reports. While the national survey still recorded a reading above 50 (that indicates sector growth), it fell from the August report and analysts are now concerned any rebound may fizzle before its gets started. Likewise, factory orders dropped by the largest amount in the past five months. Consumer confidence slid in September, prompting new (old) concerns among the nation’s retailers, though consumer spending in August actually rose by its best percentage since October 2001 (thanks in part to “clunkers”).
| Date | Release | Comments |
|---|---|---|
| September 29 | Consumer Confidence (09/09) | Unexpected decline from August |
| September 30 | GDP – revised 2 nd quarter | Better than expected revision (economy not as weak) |
| October 1 | Personal Income/Spending (08/09) | Best showing in spending in almost 8 years |
| Initial Jobless Claims (09/26) | Increased in latest week | |
| ISM – Manu (09/09) | Sector expansion though lower reading than in August | |
| Construction Spending (08/09) | 3 rd increase in past 4 months | |
| October 2 | Unemployment Rate (09/09) | Highest rate since June 1983 |
| Nonfarm Payroll (09/09) | 21 st straight month of declining payrolls | |
| Factory Orders (08/09) | Surprisingly decline in manufacturing activity | |
| The Week Ahead | ||
| October 5 | ISM – Services (09/09) | |
| October 7 | Consumer Credit (08/09) | |
| October 8 | Initial Jobless Claims (10/03) | |
| October 9 | Balance of Trade (08/09) |
Shifting to labor, over 260,000 jobs were eliminated from the economy in September, bringing the total losses to 7.6 million since the recession began back in late-2007. The unemployment rate hit 9.8% (on its road to 10% and beyond) and nervous employees seemed inclined to hold off on major purchases (except those discounted cars) until their individual situations stabilize. In (more positive) housing news, the S&P/Case-Shiller home price index rose for the third consecutive month and the National Association of Realtors reported that sales of existing homes climbed for the seventh straight month as first-time buyers took advantage of the federal tax credit that is scheduled to expire in November. The economy (GDP) as a whole contracted in the second quarter (-0.7%), though the pace was a tad better than the prior report indicated (-1.0%).
On the Horizon... A new quarter means another earnings season and Alcoa (October 7) is officially now on the clock. Bear in mind, the major debacle among financials and the credit crisis started in earnest last September 2008 and many analysts expect the comparative earnings numbers to begin looking better in this next round of releases. Based on the latest deal-making activity and renewed optimism coming out of the corporate boardrooms, they may just be right. In fact, while some “negative nellies” continue to predict “doom and gloom” and an eventual retest of the March lows, others look at positive signs from the IPO and M&A worlds as reasons that the equity rally could very well continue. While news from the Fed was relatively quiet during the week, investors continued to dissect each and every policy-maker’s comments for indications of when they may begin unwinding certain programs. The latest auto sales data showed how quickly activity can cease once “clunkers” ended, and Fed watchers remain skeptical about other sectors after stimuli like homeowners’ tax credits go away as well.
Ron Brounes
http://www.ronbrounes.com
