Market Matters… The bulls took a hiatus this week (hopefully temporary) and digested an array of mixed economic data (see below), over-analyzed the statement from the Fed policy meeting, followed the daytime drama known as Bank of America vs. the gov, checked out the inner-workings of geo-politics at its best (or worst?) at the G20 meeting (thanks for the entertainment, Mr. Gaddafi), and surveyed the business landscape for corporate transactions. When the dust had settled, some chose to take profits from the massive run-up of the past six-plus months. While certain naysayers have been calling for an equity pullback for days/weeks/months, the jury is out over whether the negative activity of the week constitutes a short-term setback or a longer-term correction. Time will tell.
While Bank of America continued to try to move beyond the long-arm of the gov, Congress and the SEC remain hung up on that Merrill Lynch transaction and the communications (or lack thereof) surrounding those developments. Though the banking behemoth will be paying the Treasury, Fed, and FDIC to end its “loss-sharing pact,” the SEC decided that the courtroom is the best place to sort through the sorted details of the Merrill deal. In other transaction news, corporate boardrooms remain a-buzz as several new IPOs were priced during the week, led by auto-supplier A123 Systems which saw its price surge 50% on its first trading day (“irrational exuberance” revisited?). In fact, the new offerings that hit the market totaled in excess of $3.5 billion, the best deal-making week since late 2007. Dell took oft-discussed measures to compete with rival HP by agreeing to buy Perot Systems for $3.9 billion and what some analysts consider “more than full value.” Meanwhile, Cadbury PLC seemed to reveal a new openness to a deal with Kraft, though late in the week management claimed its CEO was taken out of context.
In earnings news, Lowe’s projected that sales will finally begin to increase after three straight years of declines, though the home improvement retailer still remained cautious and plans to slow new store openings in the coming year. Carnival reported strong bookings for its cruises, though again much of the activity has been derived from significant discounting. General Mills raised its outlook for the year after reporting stronger sales and lower expenses. Finally, Research in Motion’s (Blackberry) management gave a surprisingly meek earnings forecast and its stock came back to earth after a “healthy” 100% climb over the past six months.
Oil prices plunged below the $70/level early in the week and continued a downward spiral as rising supplies of crude, gasoline, and heating oil implied sluggish demand. Late in the week, energy rose slightly again on concerns about Iran’s nuclear capabilities. Despite investors’ willingness to assume more risk (as depicted by the successful IPO activity), the major equity indexes gave back ground during the week and fixed income benefited from a flight-to-quality into treasuries. Investors seemed unsure of what to make of the seemingly positive comments from the Fed (see below) and how the economy and markets would react as the policymakers begin to unwind certain programs. Any new (cohesive) thoughts, Mr. Gaddafi?
Economically Speaking…
Weekly Economic Calendar
Amid typical fireworks and protests over certain controversial appearances, the G20 leaders embarked on a strategy aimed at granting new global responsibilities for developing Asian and Latin American countries and (perhaps) less influence for the United States and other debtor nations. Prez O and his French and British counterparts also got tougher with Iran by demanding accountability for its “nuclear ambitions” and threatening new stiff sanctions (or worse) should its leaders remain non-compliant. (Surely, it was just a big misunderstanding?)
Bernanke and friends got together to set monetary policy and, as expected, kept the range for the funds rate at basically 0% (to 0.25%) for the immediate future. The accompanying Fed statement offered reason for optimism; it read “…economic activity has picked up…” as opposed to “…economic activity is leveling out…” as was described after the last meeting. (What a difference a few carefully placed words can make.) Though the Fed agreed to continue buying mortgage-related securities to help calm those markets, it will slow such purchases to avoid a sudden shock to the system once the program comes to a close in 2010.
The economic calendar was fairly busy during the week and analysts had their hands full dissecting the data and the Fed comments. While many had predicted a housing rebound, the latest news implied such forecasts may be premature. Existing home sales fell unexpectedly in August, though its activity level was still the second best in almost two years. New home sales rose during the month, but still underperformed analysts’ expectations. Likewise, the manufacturing sector suffered a blow as durable goods order in August encountered its biggest decline in seven months. On a positive note, the Reuters/U. of Michigan sentiment index reflected its best showing since January 2008, a welcome relief for retailers who hope for a resurgence of consumer activity (even without “clunkers”) as the holiday season approaches.
On the Horizon… As (historically poor-performing) September winds down, investors hope the equity gains experienced earlier in the month can hold and break the negativity of the past. The end-of-the-quarter often brings some window-dressing as managers take profits, harvest losses, and/or restructure portfolios for the homestretch. The unemployment release highlights a hectic week on the economic calendar which also finds significant data from manufacturing and housing. The past few favorable jobless claims reports brought a bit of optimism about labor, though most analysts still believe a 10% unemployment rate to be a foregone conclusion.
Ron Brounes
http://www.ronbrounes.com
| Market/Index | Year Close (2008) | Qtr Close (06/30/09) | Previous Week (09/18/09) | Current Week (09/25/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 8,447.00 | 9,820.20 | 9,665.19 | +10.13% |
| NASDAQ | 1,577.03 | 1,835.04 | 2,132.86 | 2,090.92 | +32.59% |
| S&P 500 | 903.25 | 919.32 | 1,068.30 | 1,044.38 | +15.62% |
| Russell 2000 | 499.45 | 508.28 | 617.88 | 598.94 | +19.92% |
| Global Dow | 1526.21 | 1,629.31 | 1,926.12 | 1,884.05 | +23.45% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.52% | 3.47% | 3.33% | +109 bps |
While Bank of America continued to try to move beyond the long-arm of the gov, Congress and the SEC remain hung up on that Merrill Lynch transaction and the communications (or lack thereof) surrounding those developments. Though the banking behemoth will be paying the Treasury, Fed, and FDIC to end its “loss-sharing pact,” the SEC decided that the courtroom is the best place to sort through the sorted details of the Merrill deal. In other transaction news, corporate boardrooms remain a-buzz as several new IPOs were priced during the week, led by auto-supplier A123 Systems which saw its price surge 50% on its first trading day (“irrational exuberance” revisited?). In fact, the new offerings that hit the market totaled in excess of $3.5 billion, the best deal-making week since late 2007. Dell took oft-discussed measures to compete with rival HP by agreeing to buy Perot Systems for $3.9 billion and what some analysts consider “more than full value.” Meanwhile, Cadbury PLC seemed to reveal a new openness to a deal with Kraft, though late in the week management claimed its CEO was taken out of context.
In earnings news, Lowe’s projected that sales will finally begin to increase after three straight years of declines, though the home improvement retailer still remained cautious and plans to slow new store openings in the coming year. Carnival reported strong bookings for its cruises, though again much of the activity has been derived from significant discounting. General Mills raised its outlook for the year after reporting stronger sales and lower expenses. Finally, Research in Motion’s (Blackberry) management gave a surprisingly meek earnings forecast and its stock came back to earth after a “healthy” 100% climb over the past six months.
Oil prices plunged below the $70/level early in the week and continued a downward spiral as rising supplies of crude, gasoline, and heating oil implied sluggish demand. Late in the week, energy rose slightly again on concerns about Iran’s nuclear capabilities. Despite investors’ willingness to assume more risk (as depicted by the successful IPO activity), the major equity indexes gave back ground during the week and fixed income benefited from a flight-to-quality into treasuries. Investors seemed unsure of what to make of the seemingly positive comments from the Fed (see below) and how the economy and markets would react as the policymakers begin to unwind certain programs. Any new (cohesive) thoughts, Mr. Gaddafi?
Economically Speaking…
Weekly Economic Calendar
| Date | Release | Comments |
|---|---|---|
| September 21 | Leading Eco. Indicators (08/09) | 5 th straight monthly increase |
| September 23 | Fed Policy Meeting Statement | Relatively upbeat statement as rates held steady at 0% |
| September 24 | Initial Jobless Claims (09/19) | Third consecutive weekly decline |
| Existing Home Sales (08/09) | Unexpected decline, but 2 nd best showing in 23 months | |
| September 25 | Durable Goods Orders (08/09) | Surprising drop was worst showing since January |
| New Home Sales (08/09) | Lower than expected increase | |
| The Week Ahead | ||
| September 29 | Consumer Confidence (09/09) | |
| September 30 | GDP – revised 2 nd quarter | |
| October 1 | Personal Income/Spending (08/09) | |
| Initial Jobless Claims (09/26) | ||
| ISM – Manu (09/09) | ||
| Construction Spending (08/09) | ||
| October 2 | Unemployment Rate (09/09) | |
| Nonfarm Payroll (09/09) | ||
| Factory Orders (08/09) |
Amid typical fireworks and protests over certain controversial appearances, the G20 leaders embarked on a strategy aimed at granting new global responsibilities for developing Asian and Latin American countries and (perhaps) less influence for the United States and other debtor nations. Prez O and his French and British counterparts also got tougher with Iran by demanding accountability for its “nuclear ambitions” and threatening new stiff sanctions (or worse) should its leaders remain non-compliant. (Surely, it was just a big misunderstanding?)
Bernanke and friends got together to set monetary policy and, as expected, kept the range for the funds rate at basically 0% (to 0.25%) for the immediate future. The accompanying Fed statement offered reason for optimism; it read “…economic activity has picked up…” as opposed to “…economic activity is leveling out…” as was described after the last meeting. (What a difference a few carefully placed words can make.) Though the Fed agreed to continue buying mortgage-related securities to help calm those markets, it will slow such purchases to avoid a sudden shock to the system once the program comes to a close in 2010.
The economic calendar was fairly busy during the week and analysts had their hands full dissecting the data and the Fed comments. While many had predicted a housing rebound, the latest news implied such forecasts may be premature. Existing home sales fell unexpectedly in August, though its activity level was still the second best in almost two years. New home sales rose during the month, but still underperformed analysts’ expectations. Likewise, the manufacturing sector suffered a blow as durable goods order in August encountered its biggest decline in seven months. On a positive note, the Reuters/U. of Michigan sentiment index reflected its best showing since January 2008, a welcome relief for retailers who hope for a resurgence of consumer activity (even without “clunkers”) as the holiday season approaches.
On the Horizon… As (historically poor-performing) September winds down, investors hope the equity gains experienced earlier in the month can hold and break the negativity of the past. The end-of-the-quarter often brings some window-dressing as managers take profits, harvest losses, and/or restructure portfolios for the homestretch. The unemployment release highlights a hectic week on the economic calendar which also finds significant data from manufacturing and housing. The past few favorable jobless claims reports brought a bit of optimism about labor, though most analysts still believe a 10% unemployment rate to be a foregone conclusion.
Ron Brounes
http://www.ronbrounes.com
