Market Matters…Unemployment is coming; unemployment is coming! For much of the week, traders, analysts, and investors alike (as well as nervous workers and their equally nervous employers) anxiously awaited the key labor statistics. With a 10% jobless rate all but a foregone conclusion, some may have even placed side bets about whether October would be prove to be the “fateful month.” Before Friday’s big release; however, they spent time dissecting other crucial headlines: earnings, transactions, “bailout” news, a Fed meeting, and an array of economic data. For the most part, they must have liked what they saw as a Dow 10k weekly close again became a real possibility.
Earnings season plugged along and the results were quite favorably received. Starbucks reported successes in its cost-cutting measures as it continued to fight off harsh challenges from new coffee rival, McDonalds. Cisco Systems bested analysts’ expectations and its CEO issued optimistic guidance about future IT spending. AIG even posted a second straight quarterly profit (amazing what a gov bailout can do for the numbers), though warned that fourth quarter results may not look as promising. Finally, Ford announced a nice turnaround quarter in the US (thanks Cash for Clunkers) and followed up the earnings report with some glowing October sales data. Meanwhile, Warren Buffett made a strong statement about his view of the future of the economy, as Berkshire Hathaway looked to buy railroad giant Burlington Northern Santa Fe in what would be the company’s largest acquisition ever at over $25 billion. In other transaction news, toolmaker Stanley Works will be joining forces with rival Black & Decker, and Hyatt Hotels enjoyed a successful IPO at a time when the travel biz remains sluggish at best. Finally, after months of struggling to find alternative solutions, CIT Group filed for (inevitable) bankruptcy protection, though management claimed that its small- and mid-sized business customers will continue to receive the much-needed capital so critical to their ongoing operations.
Since the housing markets has gotten a bit of a bump from the first-time homebuyers tax credit, Congress chose to extend the stimulus program into 2010 (must have a contract by April 30) and even opened up the benefit to certain current owners as well. Further, Fannie Mae introduced a plan to stem the rapidly growing foreclosure rate by allowing distressed homeowners to rent their existing homes for up to 12-months. The move is aimed at preventing mass properties from hitting the depressed real estate market at a time when the sector is showing signs of recovery.
And the answer is…while the 10% unemployment rate became reality (see below), investors found enough positives within the data to give the Dow once last chance for a 10,000 close. Stocks also took clues from the other earnings and economic reports that continue to depict improvement (and Buffett’s vote of confidence didn’t hurt matters either). Gold pushed to a new high and oil stayed range-bound as “speculators” continued to trade more on the perception of the economy than true fundamental issues of supply/demand. A late-week upgrade of GE proved the deciding factor as the Dow overcome early weakness from the labor data to close above 10,000.
Weekly Economic Calendar
No use beating around the bush. The unemployment rate surged past 10% (to 10.2%) in October to its highest level in over 26 years; the economy lost another 190,000 jobs to boot, the 22nd straight month of labor contraction since December 2007, the official start of the recession. Another government measure actually put the jobless rate at 17.5% when people who have simply stopped looking for work entirely are added to the equation. Still, economists managed to find some ray of hope in the otherwise depressing data. The job loss represented a substantial improvement since the beginning of the year when over 700,000 positions were eliminated in January alone. Additionally, both initial and total jobless claims declined in the latest weekly reports, another sign that the labor picture actually may be improving (though ever so slightly).
In other news, the manufacturing sector continued to experience expansion as the October ISM index climbed for the third consecutive month and factory orders rose more than expected in September. Even retailers got some decent news heading into the holiday season. The monthly same-store sales data depicted its best showing since summer-2008 and many companies have been reaping the benefits of margin improvements as cost-cutting measures contribute to bottom-line results. Gap and Aeropostale were among those retailers to increase earnings forecasts, while Nordstrom posted a surprising jump in sales.
Bernanke and friends got together to set monetary policy and seemed to reveal more confidence in the state of the economy and prospects for the future. As expected, the policymakers left the fed funds rate unchanged at about 0% and announced plans to continue purchasing mortgage-related securities through March 2010. While the Fed expressed its views that the economy “continued to pick up,” not everything from the meeting was totally rosy. The accompanying statement added that household spending "…remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit." (Thanks for the upbeat analysis, Dr. B.) Still, they do not seem overly concerned about inflation (at least, not for now) as the weaker labor market and challenging consumer environment should limit prospects for price pressures for the foreseeable future. (But don’t forget about those dueling deficits.)
On the Horizon…Retailers maintain the limelight as they take center stage in the earnings game. Coming off a nice week with some decent sales data, investors are hoping they continue to build momentum heading into the holiday season. Macy’s (11/11), Wal-Mart (11/12), Kohls (11/12), Nordstrom, (11/12), Abercrombie & Fitch (11/13), JC Penney (11/13) all report next week. In particular, the Wal-Mart announcement will be widely anticipated as the company no longer issues monthly sales reports and has garnered many headlines lately given the recent price wars over books, DVDs, etc. The economic over-analysis takes a bit of a break next week as few key releases are scheduled, though the initial (and continuous) jobless claims data seem to get more attention each week as the unemployment picture remains paramount on most radar screens.
Ron Brounes
http://www.ronbrounes.com
| Market/Index | Year Close (2008) | Qtr Close (09/30/09) | Previous Week(10/30/09) | Current Week(11/06/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 9,712.28 | 9,712.73 | 10,023.42 | 14.21% |
| NASDAQ | 1,577.03 | 2,122.42 | 2,045.11 | 2,112.44 | 33.95% |
| S&P 500 | 903.25 | 1,057.08 | 1,036.18 | 1,069.30 | 18.38% |
| Russell 2000 | 499.45 | 604.28 | 562.77 | 580.35 | 16.20% |
| Global Dow | 1526.21 | 1,894.59 | 1,860.14 | 1,903.30 | 24.71% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.31% | 3.39% | 3.50% | 126 bps |
Earnings season plugged along and the results were quite favorably received. Starbucks reported successes in its cost-cutting measures as it continued to fight off harsh challenges from new coffee rival, McDonalds. Cisco Systems bested analysts’ expectations and its CEO issued optimistic guidance about future IT spending. AIG even posted a second straight quarterly profit (amazing what a gov bailout can do for the numbers), though warned that fourth quarter results may not look as promising. Finally, Ford announced a nice turnaround quarter in the US (thanks Cash for Clunkers) and followed up the earnings report with some glowing October sales data. Meanwhile, Warren Buffett made a strong statement about his view of the future of the economy, as Berkshire Hathaway looked to buy railroad giant Burlington Northern Santa Fe in what would be the company’s largest acquisition ever at over $25 billion. In other transaction news, toolmaker Stanley Works will be joining forces with rival Black & Decker, and Hyatt Hotels enjoyed a successful IPO at a time when the travel biz remains sluggish at best. Finally, after months of struggling to find alternative solutions, CIT Group filed for (inevitable) bankruptcy protection, though management claimed that its small- and mid-sized business customers will continue to receive the much-needed capital so critical to their ongoing operations.
Since the housing markets has gotten a bit of a bump from the first-time homebuyers tax credit, Congress chose to extend the stimulus program into 2010 (must have a contract by April 30) and even opened up the benefit to certain current owners as well. Further, Fannie Mae introduced a plan to stem the rapidly growing foreclosure rate by allowing distressed homeowners to rent their existing homes for up to 12-months. The move is aimed at preventing mass properties from hitting the depressed real estate market at a time when the sector is showing signs of recovery.
And the answer is…while the 10% unemployment rate became reality (see below), investors found enough positives within the data to give the Dow once last chance for a 10,000 close. Stocks also took clues from the other earnings and economic reports that continue to depict improvement (and Buffett’s vote of confidence didn’t hurt matters either). Gold pushed to a new high and oil stayed range-bound as “speculators” continued to trade more on the perception of the economy than true fundamental issues of supply/demand. A late-week upgrade of GE proved the deciding factor as the Dow overcome early weakness from the labor data to close above 10,000.
Weekly Economic Calendar
Date Release Comments November 2 Construction Spending (09/09) Biggest rise in activity in over 6 years ISM – Manu (10/09) Stronger than expected growth in manufacturing November 3 Factory Orders (09/09) 5 th increase in past 6 months November 4 ISM – Services (10/09) 2 nd consecutive month of sector growth Fed Policy Meeting Statement More confidence though concerned about labor November 5 Initial Jobless Claims (10/31) Initial and total claims decreased last week November 6 Non-farm Payroll (10/09) Fewer than expected jobs lost due to temp hires Unemployment Rate (10/09) Highest level since April 1983 Consumer Credit (09/09) Record 8 th straight month of lower borrowing The Week Ahead November 12 Initial Jobless Claims (11/07) November 13 Balance of Trade (09/09)
No use beating around the bush. The unemployment rate surged past 10% (to 10.2%) in October to its highest level in over 26 years; the economy lost another 190,000 jobs to boot, the 22nd straight month of labor contraction since December 2007, the official start of the recession. Another government measure actually put the jobless rate at 17.5% when people who have simply stopped looking for work entirely are added to the equation. Still, economists managed to find some ray of hope in the otherwise depressing data. The job loss represented a substantial improvement since the beginning of the year when over 700,000 positions were eliminated in January alone. Additionally, both initial and total jobless claims declined in the latest weekly reports, another sign that the labor picture actually may be improving (though ever so slightly).
In other news, the manufacturing sector continued to experience expansion as the October ISM index climbed for the third consecutive month and factory orders rose more than expected in September. Even retailers got some decent news heading into the holiday season. The monthly same-store sales data depicted its best showing since summer-2008 and many companies have been reaping the benefits of margin improvements as cost-cutting measures contribute to bottom-line results. Gap and Aeropostale were among those retailers to increase earnings forecasts, while Nordstrom posted a surprising jump in sales.
Bernanke and friends got together to set monetary policy and seemed to reveal more confidence in the state of the economy and prospects for the future. As expected, the policymakers left the fed funds rate unchanged at about 0% and announced plans to continue purchasing mortgage-related securities through March 2010. While the Fed expressed its views that the economy “continued to pick up,” not everything from the meeting was totally rosy. The accompanying statement added that household spending "…remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit." (Thanks for the upbeat analysis, Dr. B.) Still, they do not seem overly concerned about inflation (at least, not for now) as the weaker labor market and challenging consumer environment should limit prospects for price pressures for the foreseeable future. (But don’t forget about those dueling deficits.)
On the Horizon…Retailers maintain the limelight as they take center stage in the earnings game. Coming off a nice week with some decent sales data, investors are hoping they continue to build momentum heading into the holiday season. Macy’s (11/11), Wal-Mart (11/12), Kohls (11/12), Nordstrom, (11/12), Abercrombie & Fitch (11/13), JC Penney (11/13) all report next week. In particular, the Wal-Mart announcement will be widely anticipated as the company no longer issues monthly sales reports and has garnered many headlines lately given the recent price wars over books, DVDs, etc. The economic over-analysis takes a bit of a break next week as few key releases are scheduled, though the initial (and continuous) jobless claims data seem to get more attention each week as the unemployment picture remains paramount on most radar screens.
Ron Brounes
http://www.ronbrounes.com
