Market Matters… Welcome to earnings season 2009 part 3. For the past few quarters, investors seemed satisfied with declining profits (even losses) that were not quite as weak as had been expected. Given the debacle the country (heck, the world) had faced since September 2008, anything other than “absolutely dire” was viewed favorably. However, now that the worst has passed (hopefully), “a less-than-expected decline” is no longer good enough.
Analysts and investors alike are looking for progress, for recovery, for rebound from the abyss known as the global recession. Relative comparisons should begin to look better since, after all, third quarter 2008 was when the misery began. And Alcoa did not disappoint. The aluminum giant kicked off the much-anticipated season with a surprising return to profitability and a projection for product demand to grow by double-digits. Wall Street rejoiced on the news and celebrated by pushing stocks higher during the week that marked the two-year anniversary of the Dow’s record close of 14,164.53.
In other corporate news, business transactions continued to make daily headlines. A group of former Ford executive entered into discussions with the automaker about acquiring Volvo. Banco Santander completed the largest IPO of the year ($8.1 billion) as the Spanish banking giant seeks to grow its operations in Brazil. Goldman Sachs analysts raised their ratings on the overall banking sector to “attractive.” The Public-Private Investment Program (PPIP) continued to make progress as three new firms, AllianceBernstein LP, BlackRock Inc, and Wellington Capital Management, met the capital requirements and now can begin buying toxic assets (with the government’s blessing and financial assistance). The credit markets continued to thaw as more firms are funding liquidity needs via commercial paper ($67.6 billion issued this week) and investors have become more confident about holding such short-term securities.
Despite the fact that the Energy Information Administration reports show significant surplus inventories in oil, gas, distillate fuels, and natural gas, energy traders focused more on the weak dollar and the strong equity market. While the laws of supply and demand may imply that related prices should be declining, crude pushed past $71.5 during the week. The dollar continued its freefall against the yen and euro, this time on rumors about a diminished role for the US currency in pricing oil. As a consequence of the plunging dollar, gold soared to a new record high as investors viewed the precious metal as a nice hedge against currency risk.
Investors enthusiastically welcomed the beginning of earnings season (thanks Alcoa) and also took some positive cues from a surprising rate hike in Australia (see below). Many continued to assume more risk within their portfolios and shifted assets into stocks from the safe-haven of treasuries. Domestic indexes bounced back from two consecutive down weeks on their way to the best weekly performance since July and their highest levels of the year. Alcoa set the bar high after week one of the season. A few more positive surprises of hearty profits could go a long way toward keeping the bullish run on track. (Then again, one report does not make a quarter.)
Economically Speaking…
Weekly Economic Calendar
The economists have spoken (at least, those who participated in the latest Wall Street Journal survey). Most believed the economy has moved beyond “doom and gloom” contraction phase and, in fact, entered expansion mode during the third quarter. Consensus projections called for 3.1% GDP growth. As has become the norm, labor remained the one main negative and the “experts” predict that the unemployment rate will climb to 10.2% by February and not show many signs of improvement for a while. With regard to Bernanke and friends, the survey revealed that Fed watchers expect policy to remain steady until next summer (August 2010) before any tightening moves are made. Dr. B. confirmed as much when he proclaimed that fed funds will stay at about 0% for an “extended period.” Meanwhile, across the pond (several lakes, a few oceans, and an array of rivers), Australia chose not to follow the Fed’s lead and lifted its key interest rate in a strong sign that the global economy was beginning to recover. The country may be left alone on an island for a while as both the Bank of England (0.5%) and the European Central Bank ((1%) chose to keep their respective benchmark rates unchanged.
On the economic front, the services sector joined its manufacturing counterpart in experiencing expansion for the first-time in almost a year, according to the Institute for Supply Management. Initial jobless claims declined for the fourth time in five weeks to the lowest level since January (though naysayers were quick to point out the weekly variations in this statistic). Still, any indication of a labor recovery would be a welcome relief for consumers, retailers, and investors alike. The trade picture unexpectedly improved in August, though analysts expect the deficit to grow over the next several months as the rebounding economy translates into higher imports of foreign-made goods. Retailers received a bit of decent news as traffic picked up in September and same-store sales jumped for the first time in 14-months. Limited Inc. reported a surprising gain, while Target, Kohl’s, and JC Penney all forecast better days ahead for future earnings.
On the Horizon…Investors get another glimpse into the mindset of the consumer as the Commerce Department reports retail sales for September. Bear in mind, the successful “cash for clunkers” stimulus will no longer contribute to these results. Analysts are hopeful that the late Labor Day prompted some last-minute back-to-school activity and the numbers will confirm this week’s favorable same-store sales data. September CPI reveals an inside look into the inflation picture, though few parties seem overly concerned about price pressures at this junction (repeat…at this juncture). And, of course, the weekly jobless claims data seems to be scrutinized more these days than normal for any signs of labor improvement. Earnings season moves into high gear as financials (Bank of America, Citigroup, JP Morgan-Chase) and techs (Intel, Google, IBM) highlight the weekly releases and try to follow Alcoa’s promising lead. Conglomerate GE also gets into the act and investors typically look forward to its announcement as an effective benchmark for the broader economy.
Ron Brounes
http://www.ronbrounes.com
Analysts and investors alike are looking for progress, for recovery, for rebound from the abyss known as the global recession. Relative comparisons should begin to look better since, after all, third quarter 2008 was when the misery began. And Alcoa did not disappoint. The aluminum giant kicked off the much-anticipated season with a surprising return to profitability and a projection for product demand to grow by double-digits. Wall Street rejoiced on the news and celebrated by pushing stocks higher during the week that marked the two-year anniversary of the Dow’s record close of 14,164.53.
| Market/Index | Year Close (2008) | Qtr Close (09/30/09) | Previous Week (10/02/09) | Current Week (10/09/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 9,712.28 | 9,487.67 | 9,864.94 | +12.40% |
| NASDAQ | 1,577.03 | 2,122.42 | 2,048.11 | 2,139.28 | +35.65% |
| S&P 500 | 903.25 | 1,057.08 | 1,025.21 | 1,071.49 | +18.63% |
| Russell 2000 | 499.45 | 604.28 | 580.20 | 614.92 | +23.12% |
| Global Dow | 1526.21 | 1,894.59 | 1,832.87 | 1,913.14 | +25.35% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.31% | 3.22% | 3.38% | +114 bps |
In other corporate news, business transactions continued to make daily headlines. A group of former Ford executive entered into discussions with the automaker about acquiring Volvo. Banco Santander completed the largest IPO of the year ($8.1 billion) as the Spanish banking giant seeks to grow its operations in Brazil. Goldman Sachs analysts raised their ratings on the overall banking sector to “attractive.” The Public-Private Investment Program (PPIP) continued to make progress as three new firms, AllianceBernstein LP, BlackRock Inc, and Wellington Capital Management, met the capital requirements and now can begin buying toxic assets (with the government’s blessing and financial assistance). The credit markets continued to thaw as more firms are funding liquidity needs via commercial paper ($67.6 billion issued this week) and investors have become more confident about holding such short-term securities.
Despite the fact that the Energy Information Administration reports show significant surplus inventories in oil, gas, distillate fuels, and natural gas, energy traders focused more on the weak dollar and the strong equity market. While the laws of supply and demand may imply that related prices should be declining, crude pushed past $71.5 during the week. The dollar continued its freefall against the yen and euro, this time on rumors about a diminished role for the US currency in pricing oil. As a consequence of the plunging dollar, gold soared to a new record high as investors viewed the precious metal as a nice hedge against currency risk.
Investors enthusiastically welcomed the beginning of earnings season (thanks Alcoa) and also took some positive cues from a surprising rate hike in Australia (see below). Many continued to assume more risk within their portfolios and shifted assets into stocks from the safe-haven of treasuries. Domestic indexes bounced back from two consecutive down weeks on their way to the best weekly performance since July and their highest levels of the year. Alcoa set the bar high after week one of the season. A few more positive surprises of hearty profits could go a long way toward keeping the bullish run on track. (Then again, one report does not make a quarter.)
Economically Speaking…
Weekly Economic Calendar
Date Release Comments October 5 ISM – Services (09/09) Sector growth for 1 st time in almost a year October 7 Consumer Credit (08/09) 7 th consecutive decline in borrowing October 8 Initial Jobless Claims (10/03) Lowest level since early January 2009 October 9 Balance of Trade (08/09) 1 st decline in 4 months The Week Ahead October 14 Retail Sales (09/09) Fed Policy Meeting minutes October 15 Initial Jobless Claims (10/10) CPI (09/09) October 16 Industrial Production (09/09)
The economists have spoken (at least, those who participated in the latest Wall Street Journal survey). Most believed the economy has moved beyond “doom and gloom” contraction phase and, in fact, entered expansion mode during the third quarter. Consensus projections called for 3.1% GDP growth. As has become the norm, labor remained the one main negative and the “experts” predict that the unemployment rate will climb to 10.2% by February and not show many signs of improvement for a while. With regard to Bernanke and friends, the survey revealed that Fed watchers expect policy to remain steady until next summer (August 2010) before any tightening moves are made. Dr. B. confirmed as much when he proclaimed that fed funds will stay at about 0% for an “extended period.” Meanwhile, across the pond (several lakes, a few oceans, and an array of rivers), Australia chose not to follow the Fed’s lead and lifted its key interest rate in a strong sign that the global economy was beginning to recover. The country may be left alone on an island for a while as both the Bank of England (0.5%) and the European Central Bank ((1%) chose to keep their respective benchmark rates unchanged.
On the economic front, the services sector joined its manufacturing counterpart in experiencing expansion for the first-time in almost a year, according to the Institute for Supply Management. Initial jobless claims declined for the fourth time in five weeks to the lowest level since January (though naysayers were quick to point out the weekly variations in this statistic). Still, any indication of a labor recovery would be a welcome relief for consumers, retailers, and investors alike. The trade picture unexpectedly improved in August, though analysts expect the deficit to grow over the next several months as the rebounding economy translates into higher imports of foreign-made goods. Retailers received a bit of decent news as traffic picked up in September and same-store sales jumped for the first time in 14-months. Limited Inc. reported a surprising gain, while Target, Kohl’s, and JC Penney all forecast better days ahead for future earnings.
On the Horizon…Investors get another glimpse into the mindset of the consumer as the Commerce Department reports retail sales for September. Bear in mind, the successful “cash for clunkers” stimulus will no longer contribute to these results. Analysts are hopeful that the late Labor Day prompted some last-minute back-to-school activity and the numbers will confirm this week’s favorable same-store sales data. September CPI reveals an inside look into the inflation picture, though few parties seem overly concerned about price pressures at this junction (repeat…at this juncture). And, of course, the weekly jobless claims data seems to be scrutinized more these days than normal for any signs of labor improvement. Earnings season moves into high gear as financials (Bank of America, Citigroup, JP Morgan-Chase) and techs (Intel, Google, IBM) highlight the weekly releases and try to follow Alcoa’s promising lead. Conglomerate GE also gets into the act and investors typically look forward to its announcement as an effective benchmark for the broader economy.
Ron Brounes
http://www.ronbrounes.com
