A Week in the Rearview - week ending 7/25/08
In the headlines
A look at some of the market movers over the past week:
- Drug maker Roche unveiled an offer to buy the piece of Genentech (NYSE: DNA) that it doesn’t already own
- The rough ride for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) continues
- A tepid forecast from Apple (Nasdaq: AAPL) put pressure on the stock
- Tech equipment maker Brocade (Nasdaq: BRCD) announced a $3 billion offer for Foundry Networks (Nasdaq: FDRY)
- Commodity costs led Costco (Nasdaq: COST) to forecast earnings below what Wall Street had been expecting
- Yahoo! (Nasdaq: YHOO) missed earnings estimates, but investors were encouraged that it wasn’t as bad as feared
- Washington Mutual (NYSE: WM) reported the largest quarterly loss in its history
- Oil prices continued to fall, as did corn
- Minutes from the last Federal Reserve rate setting meeting showed that two of the Fed’s officials voted to hike rates
- Though Amazon.com’s (Nasdaq: AMZN) margins compressed, strong sales growth led to big gains
- The Federal Reserve’s beige book report showed a weakening economy, but held few surprises
- Foreclosures continue to soar, particularly in hotspots like Las Vegas and Miami
Commentary
Though the week ended with the market down just slightly, it finished with some more pessimism in the air than when it began.
The market seemed to carry some of the momentum from the prior week into the beginning of this week, and was up over 1.5% by Wednesday. Additional strength early in the week came from better than expected earnings reports from financial names like Bank of America (NYSE: BAC). Oil, which continued to decline, also helped buoy the market.
The gains in the first half of the week, however, were wiped out and then some on Thursday as the S&P 500 fell 2.3%. Media coverage tied the decline to the disappointing existing home sales report. Despite the coincidence of the report and the market’s dive, it seems more likely that the bulk of the decline was driven simply by investors getting concerned that the financial sector is still not out of the woods. Through Wednesday the Financial Select Sector SPDR (AMEX: XLF) had gained nearly 11% since the beginning of the month, including a big 13% jump the prior Wednesday. That index fell almost 7% on Thursday.
Looking ahead
Between mid-April and the end of May we had a respite from the heavy volatility that held court during the first few months of the year. Since the beginning of June, however, there have been five days with market swings of 2% or greater, suggesting that once again investors are very unclear about what the future holds.
Moving into next week, earnings will largely be the story. Knee deep in second quarter earnings season, investors will be listening closely for updated guidance from companies on what they expect the rest of the year to look like. Expect a lot of major companies to be heading to the earnings podium — on Monday and Tuesday alone Kraft (NYSE: KFT), Verizon (NYSE: VZE), BP (NYSE: BP), Coach (NYSE: COH), Electronic Arts (Nasdaq: ERTS), Northrop Grumman (NYSE: NOC), and United States Steel (NYSE: X), among others, will report.
It’s also going to be a big week on the economic side. Tuesday kicks off with consumer confidence from The Conference Board. The expectation is that the reading will fall slightly from the prior month, however, there is clearly fear out there that the number will be worse and reflect the dour mood among consumers. The employment report follows on Wednesday which will be supplemented with the unemployment rate later in the week.
On Thursday we’ll also get the second quarter reading on GDP, which is sure to attract a lot of attention. The economy notched an anemic 1% annualized growth rate in the first quarter, but the market is expecting a markedly better 1.8% for Q2, and the briefing forecast calls for an even more robust 2.8%.
Be sure to tune back in at the end of the week for a wrap-up of what ends up transpiring. In the meantime, I will — as always — urge that you take the market’s manic moves with a grain of salt and stick to a steady investment program.
