Market Matters…This week, investors rolled back the clock to “party like it’s (March) 1999” as the Dow again attained the 10k milestone before a potential “reality-check” (or profit-taking) moved the major equity indexes lower late in the week. While few can truly explain the rapid ascent, most are not complaining about the 50%+ increase in the Dow since early March (except the naysayers who remain in cash). The index pushed past 10,000 a year after it fell below that crucial level in October 2008 on the way down to 6,500. While many “too far, too fast” discussions highlight the analysts’
reports, more and more folks are beginning to take on additional risk in their portfolios.
Earnings season provided some investors with confidence to dip their toes back into the equity pool. While most of the strong results are more indicative of cost-cutting measures than enhanced business activity, investors don’t really seem to mind. Chip giant Intel and big bank JP Morgan-Chase kicked off the week with better than expected reports. IBM overcame lower IT spending by improving its margins and also increased its outlook for the year. Google booked higher profits over the past three months than in any previous quarter over its 11-year history as Internet ad sales made a comeback. Goldman Sachs benefited from its (risky) trading operations and employees expect to reap the rewards. In fact, workers at major US banks and investment firms are primed to earn $140 billion in pay this year, even more than they received in the “go-go” days of 2007. By contrast, Bank of America’s struggled with ongoing consumer banking challenges (loan losses). CEO Ken Lewis agreed with the gov’s “pay czar” not to take home any compensation for 2009 and, in fact, will have to reimburse the company over $1 million in salary already distributed. Then again, that $70-plus million anticipated retirement (parachute) package more than makes up for the one-year pay cut. Finally, at week’s end, GE disappointed investors as its financial arms (negatively) offset strong performances in its industrial divisions.
Biz transactions also contributed to the market optimism. Drug-maker Pfizer closed on its $68 billion deal to buy Wyeth; Cisco Systems plans to acquire Starent Networks for $2.9 billion; Bloomberg is adding BusinessWeek to its growing financial news enterprise; Tribune Co. placed the hapless Chicago Cubbies into bankruptcy in advance of a proposed sale to the founder of TD Ameritrade (with or without Milton Bradley?). Blackstone Group believes value has reentered the marketplace and intends to begin selling certain portfolio companies via IPO and/or private transactions. Meanwhile, ExxonMobil is attempting to enter into a projected $4 billion deal with Kosmos Energy to obtain rights to a major oil discovery near Ghana.
Energy prices set new highs for the year as inventory levels unexpectedly fell during the week, the dollar continued to grow weaker, and the economy showed more signs of rebounding. Crude pushed past $77/barrel for the first time in 12-months. Likewise, despite the lack of inflationary signs (see below), gold surged to new highs. And, as long as we’re talking about new highs…anyone care to predict Dow 14k any time soon? (A man can dream…)
Weekly Economic Calendar
And the survey said…The National Bureau of Economic Research officially calls the beginning and end of various economic cycles (like recessions); therefore, investors and analysts alike dissect the related survey results for signs of future declarations. Over 80% of these economists believe that the recession has ended, though the actual affirmation may not occur for months as critical data continues to be assessed. While these noted “experts” believe GDP expanded at a 3% clip in the third quarter, most remain pessimistic about the overall strength of the economy and fear that labor and housing will be major roadblocks toward significant expansion.
Shifting to the gov, the Senate Finance Committee took strides toward passing comprehensive health-care reform as one Republican crossed over to the other team. While Prez O. and Dems rejoiced for the moment, final approval remains a far-distant pipedream. While the elderly continue to fear those so-called “death panels,” they received another harsh reality-check upon learning that Social Security payments will not be bumped up by the traditional cost-of-living adjustment (COLA) for the first time since 1975. With inflation non-existent (for the time-being), recipients may be forced to live on the same fixed payments in 2010 as they did in 2009.
Consumer prices actually rose by a mere 0.2% in September, though on a year-over-year basis, CPI fell by 1.3 percent (much of it related to plunging energy prices from the $140-ish highs set last summer 2008). In other economic news, retail sales plummeted in September; however, once autos were factored out of the data (in the aftermath of “cars for clunkers”), activity increased by more than analysts expected. Jobless claimed declined for the fifth week out of the past six, though most employers are not expected to resume hiring anytime soon. The Fed released minutes from its recent policy meeting and Bernanke and Co. expressed concern about how the economy would react once the stimulus programs wound down. Additionally, they continue to be leery of the almighty consumer, whose activity is imperative for jumpstarting the economy.
On the Horizon…As the Dow pushed past 10,000, optimists and pessimists continued to debate the future rise/fall of the markets. On one hand, plenty of cash remains on the sidelines and crossing that psychological barrier may prompt fence-sitters to jump from the sidelines and reallocate more into equities. On the other hand, naysayers point out that much of the recent run-up has been caused by institutional trading and individuals continue to play the “wait-and-see” game, particularly with so many folks fearful of the unemployment picture. Earnings season kicks into high gear and techs move into the forefront with Apple, Texas Instruments, and Microsoft all reporting. Amazon.com paints another picture for retailers, and investors await the Coca Cola and American Express announcementsasthese two key companies are considered benchmarks for their related fields. A few economic releases offer some prognostication for the days ahead. Leading economic indicators serve as a predictor of future activity and the Fed’s Beige Book delves deeper into the mindsets of Dr. B. and his team.
Ron Brounes
http://www.ronbrounes.com
reports, more and more folks are beginning to take on additional risk in their portfolios.
| Market/Index | Year Close (2008) | Qtr Close (09/30/09) | Previous Week (10/09/09) | Current Week (10/16/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 9,712.28 | 9,864.94 | 9,995.91 | +13.90% |
| NASDAQ | 1,577.03 | 2,122.42 | 2,139.28 | 2,156.80 | +36.76% |
| S&P 500 | 903.25 | 1,057.08 | 1,071.49 | 1,087.68 | +20.42% |
| Russell 2000 | 499.45 | 604.28 | 614.92 | 616.18 | +23.37% |
| Global Dow | 1526.21 | 1,894.59 | 1,913.14 | 1,940.20 | +27.13% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.31% | 3.38% | 3.42% | +118 bps |
Earnings season provided some investors with confidence to dip their toes back into the equity pool. While most of the strong results are more indicative of cost-cutting measures than enhanced business activity, investors don’t really seem to mind. Chip giant Intel and big bank JP Morgan-Chase kicked off the week with better than expected reports. IBM overcame lower IT spending by improving its margins and also increased its outlook for the year. Google booked higher profits over the past three months than in any previous quarter over its 11-year history as Internet ad sales made a comeback. Goldman Sachs benefited from its (risky) trading operations and employees expect to reap the rewards. In fact, workers at major US banks and investment firms are primed to earn $140 billion in pay this year, even more than they received in the “go-go” days of 2007. By contrast, Bank of America’s struggled with ongoing consumer banking challenges (loan losses). CEO Ken Lewis agreed with the gov’s “pay czar” not to take home any compensation for 2009 and, in fact, will have to reimburse the company over $1 million in salary already distributed. Then again, that $70-plus million anticipated retirement (parachute) package more than makes up for the one-year pay cut. Finally, at week’s end, GE disappointed investors as its financial arms (negatively) offset strong performances in its industrial divisions.
Biz transactions also contributed to the market optimism. Drug-maker Pfizer closed on its $68 billion deal to buy Wyeth; Cisco Systems plans to acquire Starent Networks for $2.9 billion; Bloomberg is adding BusinessWeek to its growing financial news enterprise; Tribune Co. placed the hapless Chicago Cubbies into bankruptcy in advance of a proposed sale to the founder of TD Ameritrade (with or without Milton Bradley?). Blackstone Group believes value has reentered the marketplace and intends to begin selling certain portfolio companies via IPO and/or private transactions. Meanwhile, ExxonMobil is attempting to enter into a projected $4 billion deal with Kosmos Energy to obtain rights to a major oil discovery near Ghana.
Energy prices set new highs for the year as inventory levels unexpectedly fell during the week, the dollar continued to grow weaker, and the economy showed more signs of rebounding. Crude pushed past $77/barrel for the first time in 12-months. Likewise, despite the lack of inflationary signs (see below), gold surged to new highs. And, as long as we’re talking about new highs…anyone care to predict Dow 14k any time soon? (A man can dream…)
Weekly Economic Calendar
| Date | Release | Comments |
|---|---|---|
| October 14 | Retail Sales (09/09) | Better showing despite drop in auto sales |
| Fed Policy Meeting minutes | Ongoing concern about consumer activity | |
| October 15 | Initial Jobless Claims (10/10) | 5 th decline in past 6 weeks |
| CPI (09/09) | Inflation not a major concern (for now) | |
| October 16 | Industrial Production (09/09) | Better than expected reading for manufacturing |
| The Week Ahead | ||
| October 20 | Housing Starts (09/09) | |
| PPI (09/09) | ||
| October 21 | Fed Beige Book | |
| October 22 | Initial Jobless Claims (10/17) | |
| Leading Eco. Indicators (09/09) | ||
| October 23 | Existing Home Sales (09/09) |
And the survey said…The National Bureau of Economic Research officially calls the beginning and end of various economic cycles (like recessions); therefore, investors and analysts alike dissect the related survey results for signs of future declarations. Over 80% of these economists believe that the recession has ended, though the actual affirmation may not occur for months as critical data continues to be assessed. While these noted “experts” believe GDP expanded at a 3% clip in the third quarter, most remain pessimistic about the overall strength of the economy and fear that labor and housing will be major roadblocks toward significant expansion.
Shifting to the gov, the Senate Finance Committee took strides toward passing comprehensive health-care reform as one Republican crossed over to the other team. While Prez O. and Dems rejoiced for the moment, final approval remains a far-distant pipedream. While the elderly continue to fear those so-called “death panels,” they received another harsh reality-check upon learning that Social Security payments will not be bumped up by the traditional cost-of-living adjustment (COLA) for the first time since 1975. With inflation non-existent (for the time-being), recipients may be forced to live on the same fixed payments in 2010 as they did in 2009.
Consumer prices actually rose by a mere 0.2% in September, though on a year-over-year basis, CPI fell by 1.3 percent (much of it related to plunging energy prices from the $140-ish highs set last summer 2008). In other economic news, retail sales plummeted in September; however, once autos were factored out of the data (in the aftermath of “cars for clunkers”), activity increased by more than analysts expected. Jobless claimed declined for the fifth week out of the past six, though most employers are not expected to resume hiring anytime soon. The Fed released minutes from its recent policy meeting and Bernanke and Co. expressed concern about how the economy would react once the stimulus programs wound down. Additionally, they continue to be leery of the almighty consumer, whose activity is imperative for jumpstarting the economy.
On the Horizon…As the Dow pushed past 10,000, optimists and pessimists continued to debate the future rise/fall of the markets. On one hand, plenty of cash remains on the sidelines and crossing that psychological barrier may prompt fence-sitters to jump from the sidelines and reallocate more into equities. On the other hand, naysayers point out that much of the recent run-up has been caused by institutional trading and individuals continue to play the “wait-and-see” game, particularly with so many folks fearful of the unemployment picture. Earnings season kicks into high gear and techs move into the forefront with Apple, Texas Instruments, and Microsoft all reporting. Amazon.com paints another picture for retailers, and investors await the Coca Cola and American Express announcementsasthese two key companies are considered benchmarks for their related fields. A few economic releases offer some prognostication for the days ahead. Leading economic indicators serve as a predictor of future activity and the Fed’s Beige Book delves deeper into the mindsets of Dr. B. and his team.
Ron Brounes
http://www.ronbrounes.com
