A Week in the Rearview - week ending 6/20/08
In the headlines
A look at some of the market movers over the past week:
- XM Satellite (Nasdaq: XMSR) and Sirius Satellite (Nasdaq: SIRI) made headlines as the merger started looking rocky again
- Amidst mounting losses insurer AIG (NYSE: AIG) announced the ousting of its CEO
- Crop conditions were the worst reported since 1996 as drenching rains in the Midwest have threatened corn and soybean fields in Iowa
- Shares of Chiquita Brands (NYSE: CQB) plunged on the company’s announcement of an expected loss in its third quarter
- Berkshire Hathaway’s (NYSE: BRK-A) Warren Buffett announced his support for InBev’s proposed buyout of Anheuser-Busch (NYSE: BUD)
- Goldman Sachs (NYSE: GS) analysts said that the credit problems are still in the early innings
- Meanwhile, Goldman announced earnings well above expectations
- Best Buy’s (NYSE: BBY) earnings beat expectations
- Southwest (NYSE: LUV) is looking to expand its business as rivals are cutting back
- The US producer price index rose at a startling rate in May
- US housing starts continued to fall, though the decline was close to economists’ expectations
- FedEx (NYSE: FDX) sounded a dour note when it reported earnings
- China announced that it is raising the base price for gasoline in its country
- The tough times for bond insurers continues
- Economic leading indicators increased slightly in May
Commentary
Investors found little to cheer about this week and the S&P index was pushed down more than 3%, with a 1.9% decline on Friday to cap the week.
For dedicated market watchers, there was little that was new this week contributing to the market’s worries. Early in the week, investment bank Goldman Sachs announced earnings that were refreshingly better than the rest of the industry. However, the firm coincidentally released research suggesting that there is still plenty to be concerned about in the credit environment.
The producer price index (PPI) increased at a brisk pace, keeping inflation at the top of most investors’ lists of concerns. Similar to the consumer price index, the PPI is measured on both an overall basis and a “core” basis excluding food and energy. The core measurement is increasing at a far slower pace than the broader measure, thanks largely to fuel prices, but this didn’t seem to provide investors much comfort. Meanwhile, flooding in the Midwest has stoked fears that food prices will continue to accelerate.
Looking ahead
We’re not likely to get a respite from the prevailing pain points next week. Early in the week we’ll have the The Conference Board’s consumer confidence June reading which is expected to be down slightly from the low levels of May. May new and existing home sales will be announced and it’s unlikely that these will be able to move the market much, even though existing home sales are expected to be up. The final GDP number for the first quarter is also unlikely to have much effect on the market unless the number is revised downward.
The weekly releases of initial unemployment claims and crude inventories will continue to have market moving potential.
Earnings announcements will be light next week, though we will likely get some commentary on food prices when General Mills (NYSE: GIS) announces earnings on Wednesday and ConAgra (NYSE: CAG) follows on Thursday. On the consumer side, investors may be watching Darden Restaurants (NYSE: DRI), Nike (NYSE: NKE), and Bed Bath & Beyond (NYSE: BBBY). Technology could get a boost if Oracle (Nasdaq: ORCL) is able to continue its recent string of success.
And last, but certainly not least, we do have an interest rate decision from the Federal Reserve on deck for next week. Surprised that it hasn’t been all over the headlines this past week? Don’t be. It’s unlikely that the Fed will be moving rates either way at this meeting so the announcement will likely be met with a yawn — unless there is some new commentary from the Fed that accompanies the rate decision.
We continue to recommend that long term investors stick to a steady investment plan. Market declines in the near term — the next six months to one year — will offer good opportunities for investors to buy at lower prices and benefit when the economy and the markets do recover from the current problems.
