A Week in the Rearview - week ending 4/25/08
In the headlines
A look at some of the market movers over the past week:
- Bank of America (NYSE: BAC) missed analysts’ earnings estimates and predicted very slow GDP growth for the US
- Oilfield services provider Halliburton (NYSE: HAL) beat estimates and projected a strong market ahead for them
- Texas Instruments (NYSE: TXN) disappointed with a weak outlook
- Underscoring the agriculture boom, Intrepid Potash (NYSE: IPI) had a stellar IPO
- Missed estimates and a poor outlook hurt Unitedhealth (NYSE: UNH)
- National City Corp (NYSE: NCC) raised $7 billion through Corsair Capital
- No surprise here: oil prices continued to surge
- eBay (Nasdaq: EBAY) and Craigslist got in a bit of a row
- Existing home sales continue to struggle, and new home sales were even worse
- Wall Street is expecting another small interest rate cut from the Federal Reserve next week
- Starbucks (Nasdaq: SBUX) fell hard when the company reduced its second quarter guidance
- Stocks soared in China on the announcement that the government is cutting taxes on share purchases
- The Delta (NYSE: DAL) and Northwest (NYSE: NWA) merger looks to be on track, but future mergers may not be as smooth
- Unemployment claims fell sharply
Commentary
As predicted, this past week was all about earnings. Investors were glued to the wire for earnings releases to try and figure out whether companies are feeling the pinch yet from a slowing US economy.
The results were mixed. Many of the financials that were still reporting came out with poor numbers that were anticipated. There were plenty that fell short of the pessimistic projections, but there were also some that didn’t do as badly as expected, and the market definitely took notice. Technology was the other industry reporting, and it had a much better showing thanks in part to the broader geographic diversification.
The S&P 500 was up roughly a half percent overall for week, but more notable was the fall in volatility. There wasn’t a single day during the week where the S&P closed up or down more than 1%, though this belies the intraday volatility to some extent. As I’ve pointed out in the past, a fall in volatility would be a positive sign, as it would suggest that investors and traders see the recent high amount of uncertainty dissipating. Of course we need to see this continue, since a single week is hardly telling
With the notable exception of unemployment, most of the economic and housing reports out during the week were negative. It’s questionable whether these were drowned out by earnings or if the market feels that the deterioration has already been priced in.
Looking ahead
Next week will be a good test of whether the market can keep a lid on volatility. Earnings will continue to roll out, and, specifically, we will start to see some consumer-based businesses, which many expect will show some wounds from the slowdown. Topping that off, the Federal Reserve comes back into the picture next week and will be deciding whether to cut rates further or keep them where they are.
But of course for our purposes the week ahead isn’t a primary concern. Fortunately, the view further out looks even better. As of now, the housing downturn and credit crunch doesn’t appear to be having any crippling effects on the underlying economy. Though banks are writing off billions in bad loans, they’re also going out to investors and raising new capital. Meanwhile, the economy itself is dipping, but there is a low likelihood that it is anything other than a normal cyclical downturn.
As always, while the rest of the market frets about what’s going to happen over the next six months, long term investors have the advantage of being able to sleep well. In fact, the easiest way for a long term investor to deal with this market is to simply tune out the daily noise and fluctuations and stick to a diversified portfolio and a set investment schedule.
