Market Matters…
Strike up the band; let the good times roll; banks are making money again (or not losing quite as much). Earnings season moved along and financials led the charge with (somewhat) favorable reports. Both Goldman Sachs and JP Morgan-Chase announced better than expected quarters and key execs insisted they will pay back those TARP dollars sooner than later. While Goldman appears set to raise funds through a new stock offering (and dilute current shareholders), JP Morgan insisted no similar issuance will be necessary. Citigroup’s $1.5 billion profit looked quite promising relative to its $5 billion shortfall a year ago. Still, some analysts claim the recent results reek of “shenanigans” (and unsustainable bond trading gains) and await the independent stress test results in a few weeks to paint a more accurate picture of these banks’ operations.
Turning to techs, Intel and Google reported stronger-than-anticipated quarters, but with caveats. Despite claiming that the ailing computer industry may be “bottoming,” Intel refused to offer an outlook for the current quarter. Google, on the other hand, enjoyed net income growth, though the company experienced a decline in revenue (from the 4 th quarter 2008) for the first time in it five-year public history. While cell phone giant Nokia suffered a drop in earnings, management reported optimistic signs of greater stability in the industry. Conglomerate GE posted a 35% decline in earnings, but still beat the Street outlook. Airlines did not fare quite as well as both AMR (American) and Southwest posted troubling losses and warned of tougher times ahead.
In non-earnings news, Procter and Gamble bucked the recent cost-cutting trend and announced a dividend increase. Mall owner General Growth filed for bankruptcy protection as it attempts to restructure debt positions, a move that raised concerns about commercial real estate. IBM moved beyond new Sun Microsystems overtures, claiming a reluctance to be drawn into a long antitrust battle. Despite that failed deal, the boardrooms appear a bit more active these days as transactions highlighted the business news of the week. AIG is selling its personal auto insurance line to Zurich Financial for just under $2 billion, the first of many such moves for the bailed out company. Express-Scripts will acquire WellPoint for $4.68 billion to better compete with industry leader Medco in the pharmaceutical benefit management space. Rosetta Stone, a language education specialist, underwent an IPO that reminded some of the go-go dot.com days as its stocks soared about 40% on the first day of trading, the most successful offering in a year.
April 15 th (tax day) came and went…so what does that mean for the markets? Often folks wait until the last minute to pay Uncle Sam his due and raise cash by liquidating investments around tax day. However, with incomes down (at least, investment incomes) in 2008, others may be due nice refunds and could possibly put some of those newfound dollars back into the economy and the markets. After five straight up weeks, stocks experienced an early-week pullback, before charging ahead on the financials’ earnings reports. “Six weeks and counting” have investors surmising that the rise may actually be more than a short-lived bear market rally (though Nasdaq remains the only key index in positive territory for the year). Keep those good times rolling.
Weekly Economic Calendar
Perhaps taking advice from spin-doctors, both Prez Obama and Fed Chair Bernanke put a more optimistic (though realistic) face on the current state of the economy. (Bernanke) “Today's economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence." (Obama) "By no means are we out of the woods just yet, but from where we stand, for the very first time, we are beginning to see glimmers of hope." Additionally, the Fed Beige Book reported ongoing contraction throughout the country, BUT implied that certain regions “ saw signs that activity in some sectors was stabilizing at a low level…” Obama also welcomed Cuba back into the global economy (to a limited degree) by lifting trade restrictions (telecommunications-related) and allowing increased travel and additional financial payments from Cuban-Americans to family members. So, while Cuba looks to gain footing in this increasingly “small, small world,” China chugged along with 6.1% GDP growth in the 1 st quarter, its worst showing in almost 20-years. (Most countries would kill for such growth…or any growth…these days.) China did offer some favorable consumer spending and industrial production reports that implied the worst may be over and the prior government’s stimulus may begin to take real effect in the quarters to come.
A hectic week on the economic calendar brought some mixed (confusing) results as usual. After a few stronger months of consumer activity, retailers struggled again in March as sales took a surprising tumble across most categories. Industrial production fell for the fifth straight month, revealing that manufacturers have a long way to go before declaring recovery. On the other hand, while housing starts declined in March, the losses were attributed to apartment construction, and single-family residential activity was reported flat (similar to February); some optimistic analysts predicted the worst had ended for the housing sector (perhaps a bit premature?). Both the retail and wholesale inflation gauges dropped in March with CPI experiencing its first consecutive 12-month decline in prices sine mid-1955. While some (pessimists in the bunch) were quick to play the deflation card again, most seemed content to proclaim that price pressures are simply one aspect of the economy that warrants little to no worry in the present environment.
On the Horizon…
Bank of America (4/20) remains among the last financials of note still to report earnings as investors get a look at how Merrill Lynch and Countrywide have fit into the family fold. IBM (4/20) and Apple (4/22) will shed additional insight into the tech sector, while Amazon.com (4/23) will show how online retailers are faring these days. Coca Cola (4/21) and McDonalds (4/22) reveal whether consumers have been forced to give up fast food and sodas (or maybe are enjoying more of each) to cope with the downturn. Home sales data for March highlight the economic calendar and analysts are eager to see whether February’s enhanced activity was the start of a trend or a mere anomaly. Interest rates are down; home prices are low, first-time buyers have tax incentives to buy. Could the February and March numbers represent the start (continuation) of a housing rebound? (It’s got to happen at some point…doesn’t it?)
Ron Brounes
www.ronbrounes.com
Strike up the band; let the good times roll; banks are making money again (or not losing quite as much). Earnings season moved along and financials led the charge with (somewhat) favorable reports. Both Goldman Sachs and JP Morgan-Chase announced better than expected quarters and key execs insisted they will pay back those TARP dollars sooner than later. While Goldman appears set to raise funds through a new stock offering (and dilute current shareholders), JP Morgan insisted no similar issuance will be necessary. Citigroup’s $1.5 billion profit looked quite promising relative to its $5 billion shortfall a year ago. Still, some analysts claim the recent results reek of “shenanigans” (and unsustainable bond trading gains) and await the independent stress test results in a few weeks to paint a more accurate picture of these banks’ operations.
Turning to techs, Intel and Google reported stronger-than-anticipated quarters, but with caveats. Despite claiming that the ailing computer industry may be “bottoming,” Intel refused to offer an outlook for the current quarter. Google, on the other hand, enjoyed net income growth, though the company experienced a decline in revenue (from the 4 th quarter 2008) for the first time in it five-year public history. While cell phone giant Nokia suffered a drop in earnings, management reported optimistic signs of greater stability in the industry. Conglomerate GE posted a 35% decline in earnings, but still beat the Street outlook. Airlines did not fare quite as well as both AMR (American) and Southwest posted troubling losses and warned of tougher times ahead.
| Market/Index | Year Close (2008) | Qtr Close (03/31/09) | Previous Week (04/10/09) | Current Week (04/17/09) | YTD Change |
| Dow Jones Industrial | 8,776.39 | 7,608.92 | 8,083.38 | 8,131.33 | -7.35% |
| NASDAQ | 1,577.03 | 1,528.59 | 1,652.54 | 1,673.07 | +6.09% |
| S&P 500 | 903.25 | 797.87 | 856.56 | 869.60 | -3.73% |
| Russell 2000 | 499.45 | 422.75 | 468.20 | 479.37 | -4.02% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 2.68% | 2.93% | 2.93% | +69 bps |
In non-earnings news, Procter and Gamble bucked the recent cost-cutting trend and announced a dividend increase. Mall owner General Growth filed for bankruptcy protection as it attempts to restructure debt positions, a move that raised concerns about commercial real estate. IBM moved beyond new Sun Microsystems overtures, claiming a reluctance to be drawn into a long antitrust battle. Despite that failed deal, the boardrooms appear a bit more active these days as transactions highlighted the business news of the week. AIG is selling its personal auto insurance line to Zurich Financial for just under $2 billion, the first of many such moves for the bailed out company. Express-Scripts will acquire WellPoint for $4.68 billion to better compete with industry leader Medco in the pharmaceutical benefit management space. Rosetta Stone, a language education specialist, underwent an IPO that reminded some of the go-go dot.com days as its stocks soared about 40% on the first day of trading, the most successful offering in a year.
April 15 th (tax day) came and went…so what does that mean for the markets? Often folks wait until the last minute to pay Uncle Sam his due and raise cash by liquidating investments around tax day. However, with incomes down (at least, investment incomes) in 2008, others may be due nice refunds and could possibly put some of those newfound dollars back into the economy and the markets. After five straight up weeks, stocks experienced an early-week pullback, before charging ahead on the financials’ earnings reports. “Six weeks and counting” have investors surmising that the rise may actually be more than a short-lived bear market rally (though Nasdaq remains the only key index in positive territory for the year). Keep those good times rolling.
Weekly Economic Calendar
| Date | Release | Comments |
| April 14 | PPI (03/09) | Large decline prompts deflation talk again |
| Retail Sales (03/09) | Surprising drop in retail activity | |
| April 15 | CPI (03/09) | Decline in consumer prices over 12-month period |
| Industrial Production (03/09) | 5 th consecutive monthly decline | |
| Fed Beige Book | Ever so slightly more optimistic about economy | |
| April 16 | Initial Jobless Claims (04/13/09) | Unexpected drop in weekly claims |
| Housing Starts (03/09) | Large decline in apartment construction | |
| The Week Ahead | ||
| April 20 | Leading Indicators (03/09) | |
| April 23 | Initial Jobless Claims (04/20/09) | |
| Existing Home Sales (03/09) | ||
| April 24 | New Homes Sales (03/09) |
Perhaps taking advice from spin-doctors, both Prez Obama and Fed Chair Bernanke put a more optimistic (though realistic) face on the current state of the economy. (Bernanke) “Today's economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience, and persistence." (Obama) "By no means are we out of the woods just yet, but from where we stand, for the very first time, we are beginning to see glimmers of hope." Additionally, the Fed Beige Book reported ongoing contraction throughout the country, BUT implied that certain regions “ saw signs that activity in some sectors was stabilizing at a low level…” Obama also welcomed Cuba back into the global economy (to a limited degree) by lifting trade restrictions (telecommunications-related) and allowing increased travel and additional financial payments from Cuban-Americans to family members. So, while Cuba looks to gain footing in this increasingly “small, small world,” China chugged along with 6.1% GDP growth in the 1 st quarter, its worst showing in almost 20-years. (Most countries would kill for such growth…or any growth…these days.) China did offer some favorable consumer spending and industrial production reports that implied the worst may be over and the prior government’s stimulus may begin to take real effect in the quarters to come.
A hectic week on the economic calendar brought some mixed (confusing) results as usual. After a few stronger months of consumer activity, retailers struggled again in March as sales took a surprising tumble across most categories. Industrial production fell for the fifth straight month, revealing that manufacturers have a long way to go before declaring recovery. On the other hand, while housing starts declined in March, the losses were attributed to apartment construction, and single-family residential activity was reported flat (similar to February); some optimistic analysts predicted the worst had ended for the housing sector (perhaps a bit premature?). Both the retail and wholesale inflation gauges dropped in March with CPI experiencing its first consecutive 12-month decline in prices sine mid-1955. While some (pessimists in the bunch) were quick to play the deflation card again, most seemed content to proclaim that price pressures are simply one aspect of the economy that warrants little to no worry in the present environment.
On the Horizon…
Bank of America (4/20) remains among the last financials of note still to report earnings as investors get a look at how Merrill Lynch and Countrywide have fit into the family fold. IBM (4/20) and Apple (4/22) will shed additional insight into the tech sector, while Amazon.com (4/23) will show how online retailers are faring these days. Coca Cola (4/21) and McDonalds (4/22) reveal whether consumers have been forced to give up fast food and sodas (or maybe are enjoying more of each) to cope with the downturn. Home sales data for March highlight the economic calendar and analysts are eager to see whether February’s enhanced activity was the start of a trend or a mere anomaly. Interest rates are down; home prices are low, first-time buyers have tax incentives to buy. Could the February and March numbers represent the start (continuation) of a housing rebound? (It’s got to happen at some point…doesn’t it?)
Ron Brounes
www.ronbrounes.com
