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AND THAT’S THE WEEK THAT WAS…For the Week Ended November 27, 2009

November 27, 2009
guruek

Ron Brounes

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Market Matters…Investors have plenty to be thankful for heading into the homestretch of 2009. The worst of the nightmarish financial crisis (make that…crises) appears to be ending as signs of economic recovery (though ever-so-slightly) have emerged as of late (until Dubai?). The markets have rebounded significantly from early March 2009 and panic has been replaced by relief (though the euphoria of the past few months may not be totally justified). While many retailers have been proclaiming “doom and gloom” for the holidays (as is the case each year regardless of the economic climate), some analysts expect the season to be much better than predicted. Recent sales and confidence numbers have offered a more optimistic tone; spending and income data revealed an uptick in consumer activity (see below); the weekly jobless statistics, while still abysmal, are indicating that the labor picture actually may be improving (again, ever-so-slightly).

Market/Index Year Close (2008) Qtr Close (09/30/09) Previous Week (11/20/09) Current Week (11/27/09) YTD Change
Dow Jones Industrial 8,776.39 9,712.28 10,318.16 10,309.92 17.47%
NASDAQ 1,577.03 2,122.42 2,146.04 2,138.44 35.60%
S&P 500 903.25 1,057.08 1,091.38 1,091.49 20.84%
Russell 2000 499.45 604.28 584.68 577.21 15.57%
Global Dow 1526.21 1,894.59 1,935.54 1,925.70 26.18%
Fed Funds 0.25% 0.25% 0.25% 0.25% 0 bps
10 yr Treasury (Yield) 2.24% 3.31% 3.36% 3.21% 97 bps


While Black Friday has come and gone, the significance of the day means less this year than in the past. For one, the day historically symbolized the time that retailers began to turn a profit for the year (moved “into-the-black”). With many struggling to keep stores open, the profitability references may be less appropriate. Additionally, the day typically represented a time for retailers to announce major discounts as the competitive pricing wars began in earnest. Well, thanks to Wal-Mart (and others), the price slashing commenced weeks (if not months) ago, though expect many more to ensue in the days to come. Finally, e-commerce via the Internet has made shopping from the friendly confines of home or office computer far simpler and Cyber Monday has become a bigger deal for many retailers these days as new specials are initiated online. So let the discounting, naysaying, and shopping begin (and hope those optimistic analysts are right).

In one hopeful sign for the retail season, Tiffany and Co. reported better-than-expected financial results in the third quarter as strong international sales offset sluggish domestic demand and the high-end jeweler benefited from ongoing cost-cutting measures. A few days after Dell posted another unimpressive quarter, HP offered hope for the technology sector as it continued to reap the rewards of its enhanced services biz and leave its largest rival in the dust. Banks in general returned to profitability in the third quarter as the investment markets recovered, though the FDIC struggled with a potential shortage of reserves as 50 institutions failed during the three month period and the “problem list” grew longer as well. GM may be preparing to say goodbye to its Saab unit (not the way it anticipated would happen) as Koenigsegg Group AB chose not to pursue an acquisition of the niche automaker.

The markets were open early in the week (and part of Friday), though many investors failed to notice. Traders are among the first to embark on vacations and volume was light despite the array of economic data. Stocks rose before the Dubai credit scare sent global markets tumbling late; the dollar continued to plummet; gold moved to new highs; bonds generated interest as investors looked to safe-haven assets. But who cares…its time to give thanks, stuff our faces, and SHOP.

Weekly Economic Calendar

Date Release Comments
November 23 Existing Home Sales (10/09) Far better than expected
November 24 GDP (3 rd quarter – revised) Revised downward to reflect wider trade deficit
Consumer Confidence (11/09) Better than anticipated showing
November 25 Personal Income/Spending (10/09) Rise in both bodes well for holidays
Initial Jobless Claims (11/21) Fell to lowest level since September 2008
New Home Sales (10/09) Best showing in over a year
November 26 Thanksgiving Day Markets closed
The Week Ahead
December 1 Construction Spending (10/09)
ISM (Manu) Index (11/09)
December 2 Fed’s Beige Book
December 3 Initial Jobless Claims (11/28)
ISM (Services) Index (11/09)
December 4 Unemployment Rate (11/09)
Nonfarm Payroll (11/09)
Factory Orders (10/09)


While politicos have little to agree on these days (or ever), reps from both parties (and even both chambers) seem to be taking out their joint frustrations on the Federal Reserve. (Perhaps, an easy target in an election season following the worst economic crisis since the Great Depression.) Legislators continue to push forward proposals to strip Bernanke and friends of much of their oversight powers and, perhaps, even create a new Consumer Financial Protection Agency to regulate “something” (though no one is exactly sure of what). Meanwhile, the Fed minutes revealed that the policymakers increased their projections for economic growth and discussed ways to begin unwinding some of the stimulus plans without dramatically impacting the economy or markets. Certain officials have grown concerned that all of the government intervention and the continued low level of interest rates could lead to “excessive risk-taking” and potential bubbles down the road. (Sound familiar, ex-Fed Chair Greenspan?)

Housing received a bit of good news following some recent concerns that the sector may be tumbling back into the dreaded abyss. Existing home sales soared more than anticipated and new homes sales climbed to the highest level in over a year. While construction activity had subsided last month as the temporary tax incentive on home purchases neared its November conclusion, an extension of the stimulus has given new life to the sector. Even the S&P Case-Shiller price index posted its fifth consecutive monthly increase in September, though still remains far below last year’s levels. The GDP increased by 2.8% in the third quarter, less than the 3.5% initially reported as the trade picture worsened and consumer spending remained sluggish. However, the October personal spending and income data improved, prompting newfound optimism among certain economists about the current quarter (and the holiday shopping season). Finally, prospects for the labor market improved as well as weekly jobless claims fell to its lowest level since September 2008 and total claims also declined. (Hopefully unemployed folks haven’t just given up looking for jobs and dropped out of the calculation altogether?)

On the Horizon…To shop or not to shop; that is the question. According to an AP GfK poll, 93% of consumers believe that this holiday season they will spend the same or less than they did last year. That does not bode well for consumer activity or the economy as a whole. Then again, the National Retail Federation believed that Black Friday will have drawn larger crowds this year as huge discounting lures bargain-hunters into the stores. Over the next few weeks, expect plenty of polls, surveys, and general prognostications about the success (or failure) of the season. And maybe you can even make a few trip to the mall to do your part to improve those numbers and the overall economy. Happy Thanksgiving. (We’ll worry about Dubai next week.)

Ron Brounes

http://www.ronbrounes.com


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