Market Matters…
Contradictions hit financials during the week as diverse reports about Morgan Stanley and Wells Fargo brought even more confusion to a sector that cannot seem to stay out of the daily headlines. On one hand, analysts expect Morgan Stanley to write-down an additional $1.2 billion worth of bonds; subsequently, the firm may suffer its second straight quarterly loss. On the other hand, Wells Fargo expects earnings to far surpass Street projections as the Wachovia acquisition has enhanced its mortgage lending capabilities at a time when rates are low and the housing market is showing some (ever so slight) signs of rebounding. Meanwhile, Alcoa kicked off earnings season with more of whimper than a bang. While the aluminum producing giant lost about $500 million during the quarter, the company expects to benefit from the infrastructure programs promoted in the economic stimulus package, key areas that could enhance demand for its products. Bed Bath and Beyond reported better-than-expected quarterly results and even received a favorable analyst upgrade. With the season set to kick off in a big way in the weeks to come, Thomson Reuters has called for a 37% drop in profits at S&P 500 companies, the eighth consecutive quarterly decline (though that prediction came before the Wells announcement).
Bailouts remained in the news as life insurers became the latest sector to gain access (potentially) to that much sought-after TARP money, though few details have been revealed and the exact timing of the move remains in limbo (consistent with past Treasury announcements). Regulators also debated issues surrounding those confusing bank “stress tests,” the even more confusing “toxic asset” purchases, and how the confusing mark-to-mark rules would impact implementation of each. The “new and improved” SEC is seeking public comments on several proposals that would limit short-selling by reinstating some version of the uptick rule and/or initiating circuit breakers should a security (market) fall by a certain percentage. Autos cannot be left out of the limelight as key industry suppliers will now be eligible for federal funds (bailout) as they continue to suffer alongside once-mighty GM and Chrysler. In other corporate news, the IBM/Sun Microsystems merger went DOA (dead on arrival) as Sun shareholders rejected IBM’s offer as inadequate and Jonathan Schwartz became the latest exec to fear for his job (where is ex-Yahoo CEO Jerry Yang these days?). Not all transactions suffered similar fates, however, as Pulte Homes will buy Centex in a $1.3 billion deal to become the largest domestic homebuilder.
Should five weeks be considered a trend? Early in the week, stocks experienced a strong pullback as investors watched the IBM/Sun deal go sour and anticipated the start of another weak earnings season. After four positive weeks, some chose to book profits (and raise a little cash before tax day). However, the excellent Bed Bath & Beyond report brought renewed confidence about consumers, and the unexpected Wells’ outlook sent financials (and others) higher. Crude moved above $52/barrel as traders reacted to a lower-than-expected inventory report and focused on the rising stock market and hopes that retailers (see below) could aid an upcoming economic recovery. Investors (at least, those who were not short) welcomed the continued market rebound and departed Thursday for a long holiday weekend. For now, this trend is definitely a friend.
Weekly Economic Calendar
A light week on the calendar still provided plenty of headlines on the economic home front. Corporate execs painted a rather bleak picture of the short-term future for US industry as the Business Roundtable (100 top CEOs) issued a quarterly outlook that turned negative for the first time in its survey’s history. The majority of those participating expect their companies to experience layoffs and reductions in business spending during the upcoming six months. However, the Roundtable Chairman expressed confidence in the Obama administration’s ability to generate renewed business activity and he believes the economy may be close to a bottom. On the other hand, minutes from the latest Fed policy meeting indicate that Bernanke and friends revised their expectations (to the downside) for the economic recovery. While they anticipate GDP will flatten (from its current contraction state) by the end of the year, unemployment is expected to continue its downward spiral well into 2010. Though initial claims for unemployment benefits surprisingly fell last week, they remain at very high levels, and total claims (those looking for jobs over extended periods) jumped to a record high. While the trade deficit narrowed to its lowest level since November 1999, the improvement is more indicative of the sluggish economy and the reduced global demand for any and all goods and services.
Retailers posted their results of March sales and the numbers were mixed at best. While Wal-Mart had long been the one staple during this economic downturn, the world’s largest retailer reported March sales that missed expectations (though the company does expect its quarterly results to be strong, thanks to a stellar February). Stores that target teens like Abercrombie & Fitch, Aeropostale, and American Eagle posted disappointing numbers, though analysts point out that Easter (and many spring breaks) fall later in the 2009 calendar (April 12 vs. March 23 in 2008) and most holiday shoppers are waiting until the last minute these days. Still, more than 50% of those retailers reporting beat Street expectations and some even issued favorable guidance for the quarter as a whole. Of note, TJX Corp (TJ Maxx and Marshalls) and JC Penney both posted better-than-expected sales results and increased their outlooks for the three month period.
On the Horizon…
Earnings season takes center stage again and certain financials hope to follow in Wells’ footsteps by issuing some decent reports: Goldman Sachs (4/14), JP Morgan-Chase (4/16), and Citigroup 4/17). While some bank CEOs were quick to announce favorable showings for the first two months of the year, analysts are concerned that March may have reigned in some of the optimism and the overall numbers may, in fact, disappoint. Bear in mind, financials have led the charge in equities during the past five weeks so investors may be looking for any excuse to take some recent profits. (Then again, perhaps another Wells-like surprise lurks on the horizon.) Intel (4/14), Google (4/16), and GE (4/17) represent a few other key earnings releases. The March inflation gauges highlight the economic calendar and economists hope that price pressures remain far off of their radar screens. The retail sales data should lend a bit more insight into the current plight of the consumer. Until then…enjoy the long weekend.
Ron Brounes
www.ronbrounes.com
Contradictions hit financials during the week as diverse reports about Morgan Stanley and Wells Fargo brought even more confusion to a sector that cannot seem to stay out of the daily headlines. On one hand, analysts expect Morgan Stanley to write-down an additional $1.2 billion worth of bonds; subsequently, the firm may suffer its second straight quarterly loss. On the other hand, Wells Fargo expects earnings to far surpass Street projections as the Wachovia acquisition has enhanced its mortgage lending capabilities at a time when rates are low and the housing market is showing some (ever so slight) signs of rebounding. Meanwhile, Alcoa kicked off earnings season with more of whimper than a bang. While the aluminum producing giant lost about $500 million during the quarter, the company expects to benefit from the infrastructure programs promoted in the economic stimulus package, key areas that could enhance demand for its products. Bed Bath and Beyond reported better-than-expected quarterly results and even received a favorable analyst upgrade. With the season set to kick off in a big way in the weeks to come, Thomson Reuters has called for a 37% drop in profits at S&P 500 companies, the eighth consecutive quarterly decline (though that prediction came before the Wells announcement).
| Market/Index | Year Close (2008) | Qtr Close (03/31/09) | Previous Week (04/03/09) | Current Week (04/09/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 7,608.92 | 8,017.59 | 8,083.38 | -7.90% |
| NASDAQ | 1,577.03 | 1,528.59 | 1,621.87 | 1,652.54 | +4.79% |
| S&P 500 | 903.25 | 797.87 | 842.50 | 856.56 | -5.17% |
| Russell 2000 | 499.45 | 422.75 | 456.13 | 468.20 | -6.26% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.68% | 2.91% | 2.93% | +69 bps |
Bailouts remained in the news as life insurers became the latest sector to gain access (potentially) to that much sought-after TARP money, though few details have been revealed and the exact timing of the move remains in limbo (consistent with past Treasury announcements). Regulators also debated issues surrounding those confusing bank “stress tests,” the even more confusing “toxic asset” purchases, and how the confusing mark-to-mark rules would impact implementation of each. The “new and improved” SEC is seeking public comments on several proposals that would limit short-selling by reinstating some version of the uptick rule and/or initiating circuit breakers should a security (market) fall by a certain percentage. Autos cannot be left out of the limelight as key industry suppliers will now be eligible for federal funds (bailout) as they continue to suffer alongside once-mighty GM and Chrysler. In other corporate news, the IBM/Sun Microsystems merger went DOA (dead on arrival) as Sun shareholders rejected IBM’s offer as inadequate and Jonathan Schwartz became the latest exec to fear for his job (where is ex-Yahoo CEO Jerry Yang these days?). Not all transactions suffered similar fates, however, as Pulte Homes will buy Centex in a $1.3 billion deal to become the largest domestic homebuilder.
Should five weeks be considered a trend? Early in the week, stocks experienced a strong pullback as investors watched the IBM/Sun deal go sour and anticipated the start of another weak earnings season. After four positive weeks, some chose to book profits (and raise a little cash before tax day). However, the excellent Bed Bath & Beyond report brought renewed confidence about consumers, and the unexpected Wells’ outlook sent financials (and others) higher. Crude moved above $52/barrel as traders reacted to a lower-than-expected inventory report and focused on the rising stock market and hopes that retailers (see below) could aid an upcoming economic recovery. Investors (at least, those who were not short) welcomed the continued market rebound and departed Thursday for a long holiday weekend. For now, this trend is definitely a friend.
Weekly Economic Calendar
| Date | Release | Comments |
| April 7 | Consumer Credit (02/09) | Declined in February, though January upward revision |
| April 9 | Initial Jobless Claims (04/06/09) | Unexpected decline, though still at high levels |
| Balance of Trade (02/09) | Lowest deficit in over 9 years | |
| April 10 | Good Friday | Markets Closed |
| The Week Ahead | ||
| April 14 | PPI (03/09) | |
| Retail Sales (03/09) | ||
| April 15 | CPI (03/09) | |
| Industrial Production (03/09) | ||
| Fed Beige Book | ||
| April 16 | Initial Jobless Claims (04/13/09) | |
| Housing Starts (03/09) |
A light week on the calendar still provided plenty of headlines on the economic home front. Corporate execs painted a rather bleak picture of the short-term future for US industry as the Business Roundtable (100 top CEOs) issued a quarterly outlook that turned negative for the first time in its survey’s history. The majority of those participating expect their companies to experience layoffs and reductions in business spending during the upcoming six months. However, the Roundtable Chairman expressed confidence in the Obama administration’s ability to generate renewed business activity and he believes the economy may be close to a bottom. On the other hand, minutes from the latest Fed policy meeting indicate that Bernanke and friends revised their expectations (to the downside) for the economic recovery. While they anticipate GDP will flatten (from its current contraction state) by the end of the year, unemployment is expected to continue its downward spiral well into 2010. Though initial claims for unemployment benefits surprisingly fell last week, they remain at very high levels, and total claims (those looking for jobs over extended periods) jumped to a record high. While the trade deficit narrowed to its lowest level since November 1999, the improvement is more indicative of the sluggish economy and the reduced global demand for any and all goods and services.
Retailers posted their results of March sales and the numbers were mixed at best. While Wal-Mart had long been the one staple during this economic downturn, the world’s largest retailer reported March sales that missed expectations (though the company does expect its quarterly results to be strong, thanks to a stellar February). Stores that target teens like Abercrombie & Fitch, Aeropostale, and American Eagle posted disappointing numbers, though analysts point out that Easter (and many spring breaks) fall later in the 2009 calendar (April 12 vs. March 23 in 2008) and most holiday shoppers are waiting until the last minute these days. Still, more than 50% of those retailers reporting beat Street expectations and some even issued favorable guidance for the quarter as a whole. Of note, TJX Corp (TJ Maxx and Marshalls) and JC Penney both posted better-than-expected sales results and increased their outlooks for the three month period.
On the Horizon…
Earnings season takes center stage again and certain financials hope to follow in Wells’ footsteps by issuing some decent reports: Goldman Sachs (4/14), JP Morgan-Chase (4/16), and Citigroup 4/17). While some bank CEOs were quick to announce favorable showings for the first two months of the year, analysts are concerned that March may have reigned in some of the optimism and the overall numbers may, in fact, disappoint. Bear in mind, financials have led the charge in equities during the past five weeks so investors may be looking for any excuse to take some recent profits. (Then again, perhaps another Wells-like surprise lurks on the horizon.) Intel (4/14), Google (4/16), and GE (4/17) represent a few other key earnings releases. The March inflation gauges highlight the economic calendar and economists hope that price pressures remain far off of their radar screens. The retail sales data should lend a bit more insight into the current plight of the consumer. Until then…enjoy the long weekend.
Ron Brounes
www.ronbrounes.com
