Market Matters… Amid all the bailout programs (TARP, TALF, etc.), the non-alphabet one with the funny name is among the most effective. Cash for Clunkers got new life as Congress voted an additional $2 billion in the form of rebates for individuals who trade in their gas guzzlers for newer energy-efficient autos. While Republicans initially tried to resist giving any credit, the Senate offered its blessing on the program that has led to cars flying off those previously deserted showrooms as buyers take advantage and contribute to the rebirth of the domestic auto industry. In less-encouraging bailout news, the Treasury Department reported the $75 billion loan modification program has been underwhelming as Bank of America and Wells Fargo (among others) have been very slow to rework deals with eligible borrowers and foreclosures continue to rise.
Earnings season moved forward and investors still like what they see. Consistent with their domestic counterparts, British banks HSBC and Barclays both posted favorable quarterly results. Kraft reaped the benefit of folks dining in more these day (hard to beat that mac and cheese) and even Whole Foods bested expectations on enhanced margins from cost-cutting measures. Cisco Systems reported declining revenues, though management sees some nice trends in IT developing for the quarters to follow. AIG, the poster child for greed-induced bailouts (over $180 billion in government aid) actually posted its first profitable quarter since 2007 (new bonuses all around?), though its CEO warned about ongoing restructuring charges. Blackstone Group experienced a favorable quarter as well, an optimistic sign for private equity. Fannie Mae, on the other hand, looked for more government handouts after another poor quarter. Meanwhile Goldman Sachs, coming off its best quarter in its 140-year history (not bad for recessionary times), became subject of a government investigation over trading and compensation issues. Away from financials, Caterpillar offered an encouraging assessment of the economy and predicted enhanced biz as the construction and mining industries move into recovery mode. Finally, Ford’s sales in July climbed for the first time in 20-months as the company took advantage of its rivals’ misfortunes and also benefited from the Cash for Clunkers program.
While some investors previously had started to stick their toes slowly back into the equity pool, others now seem more inclined to dive back in. For months, analysts talked about the massive amount of cash on the sidelines as investors waited for the right time to undertake more risk in their portfolios. Well, for many, that time may be now. Some favorable corporate reports combined with stronger than expected labor releases (see below) to keep the equity rally alive (and well) and the markets on a nice upward trend. The week started and ended on high notes as both the Dow Jones and S&P 500 moved to levels not seen since November 2008, while the Nasdaq continued to lead the surge on a year-to-date basis. Bonds gave back considerable ground as investors sold out of the safe-haven securities in favor of stocks. Still, Treasury announced that government borrowing needs may be reduced as the economy begins to improve (and major banks paid off TARP loans). Want to celebrate the equity rally? Trade in that Clunker for cash.
Weekly Economic Calendar
While economists welcomed news from manufacturing, services, retail, and housing, most waited patiently for the late-week unemployment data as the best indicators of the state of the recession. Earlier in the week, the private ADP/Macroeconomic Advisers jobs report pointed to a better showing within labor, but the real proof came Friday when the unemployment rate FELL to 9.4% (from 9.5%) and the payroll release showed that a lower than anticipated 247,000 jobs were lost in July. While those 247,000 folks take no comfort in the numbers, investors, analysts, and the Administration collectively jumped for joy over signs that the labor picture MAY be stabilizing. The rest of the economic news was not half bad either. Construction spending in June jumped for the second straight month as both residential and government activity increased. Pending home sales climbed for the fifth consecutive month in June as the housing sector appeared to have hit rock bottom (though the recovery road ahead may be slow to develop). The manufacturing sector inched closer to expansion mode as the ISM index barely remained below the levels that indicate growth. Likewise, factory orders in June rose unexpectedly, another positive sign for the sector.
The news from retail was a bit less positive as consumers seem to be holding off on buying all but the necessities of life until the labor situation begins to improve (and one month will not make a trend). Same-store sales in July was the most dismal since January and hopeful prospects for a flurry of “back-to-school” purchases seem unlikely to develop. In the aggregate (of those 30 stores that reported), sales plunged over five percent and even discounters like Costco and Target fell below expectations. Some retailers even blamed the Cash for Clunkers program (see above), claiming that some of those discretionary moneys may have gone to them instead of the automakers. Still, Gap, Limited, and TJX were among those stores that experienced better-than-anticipated showings and pop-culture retailer Hot Topic benefited from increased sales of Michael Jackson merchandise (and maybe a few Farrah posters as well).
On the Horizon… As the summer winds down, back-to-school shopping should pick up and some sales-tax holidays across the country (in 13 states) may be just the incentive needed to bring more buyers to the malls. Despite the weak retail numbers for July, many analysts are hoping for a pick-up in activity as the recent unemployment data was reported as stronger than expected and stores may benefit from some last-minute shopping. On a related note, consumer activity stays in the limelight as Macy’s, Nordstrom, JP Penney, and Wal-Mart highlight the next round of earnings reports with the latter’s announcement most compelling since it no longer participates in the same-store sales monthly surveys. Retail sales for July will be reported in what may otherwise be considered a relatively light week on the economic calendar (CPI comes as well) as the consumer picture becomes even more clear. So much for the dog days of summer.
Ron Brounes
http://www.ronbrounes.com
Earnings season moved forward and investors still like what they see. Consistent with their domestic counterparts, British banks HSBC and Barclays both posted favorable quarterly results. Kraft reaped the benefit of folks dining in more these day (hard to beat that mac and cheese) and even Whole Foods bested expectations on enhanced margins from cost-cutting measures. Cisco Systems reported declining revenues, though management sees some nice trends in IT developing for the quarters to follow. AIG, the poster child for greed-induced bailouts (over $180 billion in government aid) actually posted its first profitable quarter since 2007 (new bonuses all around?), though its CEO warned about ongoing restructuring charges. Blackstone Group experienced a favorable quarter as well, an optimistic sign for private equity. Fannie Mae, on the other hand, looked for more government handouts after another poor quarter. Meanwhile Goldman Sachs, coming off its best quarter in its 140-year history (not bad for recessionary times), became subject of a government investigation over trading and compensation issues. Away from financials, Caterpillar offered an encouraging assessment of the economy and predicted enhanced biz as the construction and mining industries move into recovery mode. Finally, Ford’s sales in July climbed for the first time in 20-months as the company took advantage of its rivals’ misfortunes and also benefited from the Cash for Clunkers program.
| Market/Index | Year Close (2008) | Qtr Close (06/30/09) | Previous Week (07/31/09) | Current Week (08/07/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 8,447.00 | 9,171.61 | 9,370.07 | +6.76% |
| NASDAQ | 1,577.03 | 1,835.04 | 1,978.50 | 2,000.25 | +26.84% |
| S&P 500 | 903.25 | 919.32 | 987.48 | 1,010.48 | +11.87% |
| Russell 2000 | 499.45 | 508.28 | 556.71 | 572.40 | +14.61% |
| Global Dow | 1526.21 | 1,629.31 | 1,773.69 | 1,801.78 | +18.06% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.52% | 3.50% | 3.85% | +161 bps |
While some investors previously had started to stick their toes slowly back into the equity pool, others now seem more inclined to dive back in. For months, analysts talked about the massive amount of cash on the sidelines as investors waited for the right time to undertake more risk in their portfolios. Well, for many, that time may be now. Some favorable corporate reports combined with stronger than expected labor releases (see below) to keep the equity rally alive (and well) and the markets on a nice upward trend. The week started and ended on high notes as both the Dow Jones and S&P 500 moved to levels not seen since November 2008, while the Nasdaq continued to lead the surge on a year-to-date basis. Bonds gave back considerable ground as investors sold out of the safe-haven securities in favor of stocks. Still, Treasury announced that government borrowing needs may be reduced as the economy begins to improve (and major banks paid off TARP loans). Want to celebrate the equity rally? Trade in that Clunker for cash.
Weekly Economic Calendar
| Date | Release | Comments |
|---|---|---|
| August 3 | Construction Spending (06/09) | Surprising increase for 2 nd out of 3 months |
| ISM – Manu (07/09) | Contraction, but best showing since August 2008 | |
| August 4 | Personal Income/Spending (06/09) | Biggest decline in income in over 4 years |
| August 5 | Factory Orders (06/09) | Third consecutive increase in orders |
| ISM – Services (07/09) | Surprising decline after 4 straight increasing months | |
| August 6 | Initial Jobless Claims (08/01) | 4 week average at lowest level since late January |
| August 7 | Unemployment Rate (07/09) | Unexpectedly fell to 9.4% |
| Non-farm Payroll (07/09) | Smallest jobs contraction since August 2008 | |
| Consumer Credit (06/09) | 5 th straight month of declining credit (borrowing) | |
| The Week Ahead | ||
| August 12 | Balance of Trade (06/09) | |
| August 13 | Initial Jobless Claims (08/08) | |
| Retail Sales (07/09) | ||
| August 14 | CPI (07/09) | |
| Industrial Production (07/09) |
While economists welcomed news from manufacturing, services, retail, and housing, most waited patiently for the late-week unemployment data as the best indicators of the state of the recession. Earlier in the week, the private ADP/Macroeconomic Advisers jobs report pointed to a better showing within labor, but the real proof came Friday when the unemployment rate FELL to 9.4% (from 9.5%) and the payroll release showed that a lower than anticipated 247,000 jobs were lost in July. While those 247,000 folks take no comfort in the numbers, investors, analysts, and the Administration collectively jumped for joy over signs that the labor picture MAY be stabilizing. The rest of the economic news was not half bad either. Construction spending in June jumped for the second straight month as both residential and government activity increased. Pending home sales climbed for the fifth consecutive month in June as the housing sector appeared to have hit rock bottom (though the recovery road ahead may be slow to develop). The manufacturing sector inched closer to expansion mode as the ISM index barely remained below the levels that indicate growth. Likewise, factory orders in June rose unexpectedly, another positive sign for the sector.
The news from retail was a bit less positive as consumers seem to be holding off on buying all but the necessities of life until the labor situation begins to improve (and one month will not make a trend). Same-store sales in July was the most dismal since January and hopeful prospects for a flurry of “back-to-school” purchases seem unlikely to develop. In the aggregate (of those 30 stores that reported), sales plunged over five percent and even discounters like Costco and Target fell below expectations. Some retailers even blamed the Cash for Clunkers program (see above), claiming that some of those discretionary moneys may have gone to them instead of the automakers. Still, Gap, Limited, and TJX were among those stores that experienced better-than-anticipated showings and pop-culture retailer Hot Topic benefited from increased sales of Michael Jackson merchandise (and maybe a few Farrah posters as well).
On the Horizon… As the summer winds down, back-to-school shopping should pick up and some sales-tax holidays across the country (in 13 states) may be just the incentive needed to bring more buyers to the malls. Despite the weak retail numbers for July, many analysts are hoping for a pick-up in activity as the recent unemployment data was reported as stronger than expected and stores may benefit from some last-minute shopping. On a related note, consumer activity stays in the limelight as Macy’s, Nordstrom, JP Penney, and Wal-Mart highlight the next round of earnings reports with the latter’s announcement most compelling since it no longer participates in the same-store sales monthly surveys. Retail sales for July will be reported in what may otherwise be considered a relatively light week on the economic calendar (CPI comes as well) as the consumer picture becomes even more clear. So much for the dog days of summer.
Ron Brounes
http://www.ronbrounes.com
