Market Matters…One month and counting! As investors look to put a huge exclamation point on the “rally of 2009,” several headwinds may stand in their way. Once booming Dubai appears to be facing some significant challenges as it shocked the financial world last week by reporting its own debt crisis to the tune of $60 billion. Though recent talks have indicated a workable restructuring is in the makings, the story deserves to be closely monitored as the global financial system certainly does not need another meltdown. Secondly, the holiday season got off to an “iffy” start as November same-store sales badly missed analysts’ expectations and even those seemingly immune discounters like Costco and BJ Wholesale reported weaker than projected activity. (Wal-Mart does not participate in this monthly release.) The malls were hopping on Black Friday as an estimated 23 million more folks than last year engaged in holiday shopping; however, the National Retail Federation claimed that the average consumer actually spent less on that day than in 2008. The data for Cyber Monday looked somewhat better as the marketing analytics firm comScore Inc. reported a five percent increase in sales over last year (why fight those H1N1 infected crowds?), though most online shoppers also seemed to be bargain hunting.
|Market/Index||Year Close (2008)||Qtr Close (09/30/09)||Previous Week (11/27/09)||Current Week (12/04/09)||YTD Change|
|Dow Jones Industrial||8,776.39||9,712.28||10,309.92||10,388.90||18.37%|
|Fed Funds||0.25%||0.25%||0.25%||0.25%||0 bps|
|10 yr Treasury (Yield)||2.24%||3.31%||3.21%||3.48%||124 bps|
On the transaction front, Bank of America inched closer to paying back its $45 billion in bailout funds and moving out from under the long-arm of government. Prime-time TV viewers will soon be able to complain to Comcast over programming as the cable giant plans to purchase a majority ownership of NBC Universal from General Electric. In order to appease investors who may be leery of the acquisition, Comcast will be raising its dividend by 40% and engaging in a $3.6 billion share buyback plans over the next three years. Goldman Sachs has been facing its own PR battle over compensation as of late and now expects to pay out a larger percentage of future executive bonuses in the form of company stock. The technology sector received some good news during the week as semiconductors sales surged for the eighth straight month as retailers stock up for holiday purchases. Meanwhile, UBS analysts soured on financials (their own firm included?) and cut earnings projections for Morgan Stanley, JP Morgan-Chase, and others.
For the most part, investors seemed to shrug off the negativity from Dubai and reacted nicely to news of increased Internet-based holiday sales activity. By Friday, all eyes were on the unemployment data (see below) which revealed some surprising strength (make that…less weakness) in the overall labor picture. Gold took a break from its recent surge to new highs and fell below 1200 as the dollar jumped on the news. Bond investors also moved beyond the safe-haven of treasuries, fearful that the Fed may be forced to raise rates sooner than later if the labor picture does indeed continue to improve. Crude dropped mid-week on reports of increased supplies, only to rally (but only briefly) immediately after the jobs release. In November, equities enjoyed their best monthly showing since July and eternal optimists hope the “rally of 2009” continues through year-end. (Just keep careful of those headwinds.)
Weekly Economic Calendar
|December 1||Construction Spending (10/09)||1 st increase in 6 months|
|ISM (Manu) Index (11/09)||Activity fell but still showed growth in sector|
|December 2||Fed’s Beige Book||Most optimistic report in 2 years|
|December 3||Initial Jobless Claims (11/28)||5 th straight week of declining initial claims|
|ISM (Services) Index (11/09)||Sector contraction after two expanding months|
|December 4||Unemployment Rate (11/09)||Fell back to 10% from 10.2%|
|Nonfarm Payroll (11/09)||Fewest jobs lost since December 2007|
|Factory Orders (10/09)||Increased for 6 th time in 7 months|
|The Week Ahead|
|December 7||Consumer Credit (10/09)|
|December 10||Initial Jobless Claims (12/05)|
|Balance of Trade (10/09)|
|December 11||Retail Sales (11/09)|
Everyone take a deep breath as a hectic week on the economic calendar finally comes to a close…so let’s turn right to the numbers. The manufacturing sector continued to experience growth as the ISM index remained above 50 (though was lower than expected) and factory orders increased for the sixth time in seven months. (What about labor?) The services sector encountered a setback as its portion of the ISM index moved into contraction mode after two straight months of solid growth. (What about labor?) Turning to housing, construction spending climbed in October for the first time in half-a-year and the National Association of Realtors reported that sales contracts soared to its highest level since March 2006. (What about labor?)
While analysts, economists, traders, and investors alike waited patiently for the November unemployment data, they were able to dissect a few related preliminary releases in advance. The ADP-Macroeconomic Adviser private jobs report showed that fewer layoffs were announced in November. Additionally, initial jobless claims dropped for the fifth consecutive week to the lowest level since early September 2008. Both releases served as precursors for better things to come. Finally, the widely anticipated Labor Department data was reported and folks were pleasantly surprised with that they saw. The unemployment rate fell to 10% in November (from 10.2%) and nonfarm payroll dropped by only 11,000 jobs, its best showing since the beginning of the recession in December 2007. Eternal naysayers point out that the “true” jobless rate stands at 17.2% (down from 17.5% in October) as that figure includes ex-workers who have given up on their job searches (for now) and part-time employees who would prefer full-time positions. Still, given the previously dire assessment of labor, the more upbeat news could not have come at a better time, especially for retailers who hope that consumers can put their worries on hold and head back to the malls (or their favorite retail websites).
The Federal Reserve Beige Book also provided analysts with a few warm fuzzies as policymakers claimed "economic conditions have generally improved" since the last report in late October. Meanwhile, Dr. B. headed to Capitol Hill to defend his performance during the worst economic conditions since the 1930’s as grandstanding Senators debated his confirmation for a second term. Interestingly, while Congress generally seems to favor Bernanke, they rather enjoy offering harsh critiques of the Fed as a whole and continue to propose ways to limit its oversight role.
On the Horizon…While the upcoming week’s calendar appears far less hectic, investors will have new consumer-related reports to (over-)analyze. Consumer credit offers a glimpse into borrowing patterns and November retail sales provide one last look into pre-holiday shopping activity (though Black Friday and Cyber Monday results fall into this release). Further, plenty of analytics firms and trade groups will continue offering their minute-by-minute views of the holiday season, especially now that the dismal labor situation has been resolved (too optimistic?).