Market Matters
Six days and counting. Just how will equities perform in 2009? According to the January Effect, “As the first five days of January go, so goes the market for the year.” Often investors sell stocks late in the year to lock in capital losses.
When they reinvest during the first five days (stocks rise), they believe the markets will increase and look to take advantage of the appreciation. When stocks fall during that week, investors are less optimistic about the future of the markets. In 2008, both the Dow and S&P 500 indexes dropped by over five percent during the initial five trading sessions, a highly negative (but accurate) precursor of the year to come. However, in 2009, the predictor turned out to be less clear; the Dow dropped by 0.39%, while the S&P 500 rose by 0.72% (though both were lower after day 6). The market uncertainty continues into the new year.
So, how is President-elect Obama spending his final few weeks as a private citizen? After parading around the beaches of Hawaii for paparazzi, Obama has been hard at work on his stimulus package with hopes that Congress can move quickly after his inauguration. By tossing out phrases like “extraordinary economic challenge” and “(recession could) linger for years,” he emphasized the need for prompt action; his plan even throws some bones to Republicans in the form of up to $300 billion in tax cuts to bring them into the fold. At this point, however, the dissenters appear to be Dems who object to the tax cuts (or, more likely, oppose appeasing their brethren across the aisle…perhaps future Senators Franken and Burris would feel differently?). Meanwhile, politicos and Citigroup (C, Financial) agreed on a plan regarding foreclosures and the bankruptcy courts, a move that could lead more lenders to modify loans for struggling homeowners (a day before the one-time financial behemoth said goodbye to trusted adviser, Robert Rubin).
In corporate news, Wal-Mart (WMT, Financial) joined the ranks of depressed retailers by missing December sales projections and then cut its outlook for the quarter. Toyota (TM, Financial) , GM (GM, Financial), and Ford (F, Financial) reported 30% (or more) declines in sales last month, while Volkswagen and BMW announced plans for greater expansion in the US markets to take advantage of their struggling domestic competitors. Alcoa added to the gloomy unemployment picture (see below) by reducing its workforce by 15,000 jobs. Intel (INTL, Financial) warned (again) that the economy is hindering its operations as consumers and businesses shy away from technology purchases. Indian IT giant Satyam (SAY)pulled a “Madoff” by informing investors that its chairman had been falsifying financial results and exaggerated that $1 billion cash balance. Even Madoff himself was appalled (as he attempted to mail $173 million of checks to loyal investors and send $1 million in jewelry to friends and family).
Oil surged above $48/barrel early in the week as war escalated in Gaza; however, a mid-week report depicted higher than expected inventories and prices plunged 12% in a day and ultimately fell below $40 for the first time in 2009. Stocks gave back those gains from the first trading day as investors (over-)analyzed the retail numbers and other data. On the fixed income front, bond investors appear more willing to accept risk as $750 million flowed into high-yield (junk) funds during the last two weeks of 2008. Enjoy the final days, Mr. Obama (11 days and counting).
Weekly Economic Calendar
So what’s $1.2 trillion between friends? After entering office with a budget surplus, the fiscally conservative (and compassionate) W. will leave his successor a $1.186 trillion deficit (that is sure to rise given talks of the stimulus package). For his part, Obama promises to "put government on the side of taxpayers and everyday Americans" as he created a new position (chief performance officer) to eliminate waste wherever it exists in the federal budget. (Good luck with that.)
While the economic calendar was quite hectic, economists and investors alike eagerly awaited (rather, reluctantly feared) the late week unemployment and nonfarm payroll releases. In December, the jobless rate surged to 7.2%, its highest level in 16 years and another 524,000 jobs were eliminated from the economy. For all of 2009, 2.6 million jobs were lost, the biggest contraction since 1945 (though the labor force has tripled since that time). While new claims for unemployment benefits has shown some improvement over the past few weeks, continuing claims rose to a 26-year high, revealing that laid-off workers are having significant difficulties finding new jobs during the recession. Factory orders fell for the fourth straight month as the weak (and getting weaker) auto sector continued to restrict any progress in manufacturing. Consumers borrowing declined by a record amount in November as individuals remained afraid to make any purchases or add to debt positions during these dire times. Unfortunately, t he surest way to work our way out of this recession is for those individuals and businesses (who are able) to pour money back into the economy and that is simply not happening. The minutes from the December Fed meeting were released and policymakers appear highly pessimistic about growth prospects for 2009 and implied that rates could remain just above 0% for the foreseeable future. Meanwhile, the Bank of England cuts its rate to the lowest level in its 315-year history.
On the Horizon… Investors will be tested in the coming weeks as earnings season approaches and corporations share their “gloom and doom” of the past quarter (Intel and Wal-Mart offered a sneak peak). Those traders who thought oil had set a floor around $40/barrel may have to reassess their views. OPEC cuts, Middle East turmoil, Russian/Ukrainian disputes…nothing seems to be able to halt the slide in prices. (Then again, wasn’t the same thing being said in reverse about a year ago when oil was heading to $147 with no end in sight?) With Obama’s inauguration set for January 20, 2009, expect around-the-clock discussions about the stimulus package (and potential tax cuts) as the political bickering begins in earnest. (Will he prove to be the same great negotiator/conciliator as his predecessor?) The monthly inflation gauges should depict additional energy price contraction which actually has served as a (non-governmental) stimulus package at the pumps (though no one ever talks about it). Instead, the eternal pessimists focus on deflation, fearful that consumers will hold off on all purchases (regardless of pricing) and the economic downturn will continue well into 2009. On that note, the retail sales data should offer few positive surprises. At least, that new “chief performance officer” represents job expansion.
Source: Brounes & Associates
Six days and counting. Just how will equities perform in 2009? According to the January Effect, “As the first five days of January go, so goes the market for the year.” Often investors sell stocks late in the year to lock in capital losses.
When they reinvest during the first five days (stocks rise), they believe the markets will increase and look to take advantage of the appreciation. When stocks fall during that week, investors are less optimistic about the future of the markets. In 2008, both the Dow and S&P 500 indexes dropped by over five percent during the initial five trading sessions, a highly negative (but accurate) precursor of the year to come. However, in 2009, the predictor turned out to be less clear; the Dow dropped by 0.39%, while the S&P 500 rose by 0.72% (though both were lower after day 6). The market uncertainty continues into the new year.
So, how is President-elect Obama spending his final few weeks as a private citizen? After parading around the beaches of Hawaii for paparazzi, Obama has been hard at work on his stimulus package with hopes that Congress can move quickly after his inauguration. By tossing out phrases like “extraordinary economic challenge” and “(recession could) linger for years,” he emphasized the need for prompt action; his plan even throws some bones to Republicans in the form of up to $300 billion in tax cuts to bring them into the fold. At this point, however, the dissenters appear to be Dems who object to the tax cuts (or, more likely, oppose appeasing their brethren across the aisle…perhaps future Senators Franken and Burris would feel differently?). Meanwhile, politicos and Citigroup (C, Financial) agreed on a plan regarding foreclosures and the bankruptcy courts, a move that could lead more lenders to modify loans for struggling homeowners (a day before the one-time financial behemoth said goodbye to trusted adviser, Robert Rubin).
In corporate news, Wal-Mart (WMT, Financial) joined the ranks of depressed retailers by missing December sales projections and then cut its outlook for the quarter. Toyota (TM, Financial) , GM (GM, Financial), and Ford (F, Financial) reported 30% (or more) declines in sales last month, while Volkswagen and BMW announced plans for greater expansion in the US markets to take advantage of their struggling domestic competitors. Alcoa added to the gloomy unemployment picture (see below) by reducing its workforce by 15,000 jobs. Intel (INTL, Financial) warned (again) that the economy is hindering its operations as consumers and businesses shy away from technology purchases. Indian IT giant Satyam (SAY)pulled a “Madoff” by informing investors that its chairman had been falsifying financial results and exaggerated that $1 billion cash balance. Even Madoff himself was appalled (as he attempted to mail $173 million of checks to loyal investors and send $1 million in jewelry to friends and family).
Oil surged above $48/barrel early in the week as war escalated in Gaza; however, a mid-week report depicted higher than expected inventories and prices plunged 12% in a day and ultimately fell below $40 for the first time in 2009. Stocks gave back those gains from the first trading day as investors (over-)analyzed the retail numbers and other data. On the fixed income front, bond investors appear more willing to accept risk as $750 million flowed into high-yield (junk) funds during the last two weeks of 2008. Enjoy the final days, Mr. Obama (11 days and counting).
| Market/Index | Year Close (2008) | Qtr Close (12/31/08) | Previous Week (01/02/09) | Current Week (01/09/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 8,776.39 | 9,034.69 | 8,599.18 | -2.02% |
| NASDAQ | 1,577.03 | 1,577.03 | 1,632.21 | 1,571.59 | -0.34% |
| S&P 500 | 903.25 | 903.25 | 931.80 | 890.35 | -1.43% |
| Russell 2000 | 499.45 | 499.45 | 505.82 | 481.30 | -3.63% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.24% | 2.42% | 2.41% | 17 bps |
Weekly Economic Calendar
| Date | Release | Comments |
| January 5 | Construction Spending (11/08) | Much better than expected report |
| January 6 | Factory Orders (11/08) | 4 th straight monthly decline |
| ISM – Services (12/08) | Better than expected survey results for sector | |
| January 8 | Initial Jobless Claims (01/03/09) | High “continuing” claims indicates difficulty finding jobs |
| Consumer Credit (11/08) | Largest decline in consumer borrowing on record | |
| January 9 | Unemployment Rate (12/08) | Soared to highest rate in 16 years |
| Nonfarm Payroll Additions (12/08) | 2.6 million jobs lost in 2008 | |
| The Week Ahead | ||
| January 14 | Retail Sales (12/08) | |
| January 15 | PPI (12/08) | |
| Initial Jobless Claims (01/10/09) | ||
| January 16 | CPI (12/08) | |
| Industrial Production (12/08) |
So what’s $1.2 trillion between friends? After entering office with a budget surplus, the fiscally conservative (and compassionate) W. will leave his successor a $1.186 trillion deficit (that is sure to rise given talks of the stimulus package). For his part, Obama promises to "put government on the side of taxpayers and everyday Americans" as he created a new position (chief performance officer) to eliminate waste wherever it exists in the federal budget. (Good luck with that.)
While the economic calendar was quite hectic, economists and investors alike eagerly awaited (rather, reluctantly feared) the late week unemployment and nonfarm payroll releases. In December, the jobless rate surged to 7.2%, its highest level in 16 years and another 524,000 jobs were eliminated from the economy. For all of 2009, 2.6 million jobs were lost, the biggest contraction since 1945 (though the labor force has tripled since that time). While new claims for unemployment benefits has shown some improvement over the past few weeks, continuing claims rose to a 26-year high, revealing that laid-off workers are having significant difficulties finding new jobs during the recession. Factory orders fell for the fourth straight month as the weak (and getting weaker) auto sector continued to restrict any progress in manufacturing. Consumers borrowing declined by a record amount in November as individuals remained afraid to make any purchases or add to debt positions during these dire times. Unfortunately, t he surest way to work our way out of this recession is for those individuals and businesses (who are able) to pour money back into the economy and that is simply not happening. The minutes from the December Fed meeting were released and policymakers appear highly pessimistic about growth prospects for 2009 and implied that rates could remain just above 0% for the foreseeable future. Meanwhile, the Bank of England cuts its rate to the lowest level in its 315-year history.
On the Horizon… Investors will be tested in the coming weeks as earnings season approaches and corporations share their “gloom and doom” of the past quarter (Intel and Wal-Mart offered a sneak peak). Those traders who thought oil had set a floor around $40/barrel may have to reassess their views. OPEC cuts, Middle East turmoil, Russian/Ukrainian disputes…nothing seems to be able to halt the slide in prices. (Then again, wasn’t the same thing being said in reverse about a year ago when oil was heading to $147 with no end in sight?) With Obama’s inauguration set for January 20, 2009, expect around-the-clock discussions about the stimulus package (and potential tax cuts) as the political bickering begins in earnest. (Will he prove to be the same great negotiator/conciliator as his predecessor?) The monthly inflation gauges should depict additional energy price contraction which actually has served as a (non-governmental) stimulus package at the pumps (though no one ever talks about it). Instead, the eternal pessimists focus on deflation, fearful that consumers will hold off on all purchases (regardless of pricing) and the economic downturn will continue well into 2009. On that note, the retail sales data should offer few positive surprises. At least, that new “chief performance officer” represents job expansion.
Source: Brounes & Associates
