A Week in the Rearview - week ending 8/8/08
In the headlines
A look at some of the market movers over the past week:
- Oil continued to fall this week as concerns over US demand grew and the dollar strengthened
- New factory orders were up more than economists expected
- Results from Freddie Mac (NYSE: FRE) were much worse than expected
- Fannie Mae (NYSE: FNM) wasn’t looking any better
- Bond insurer Ambac (NYSE: ABK) reported a loss and drew the ire of analysts
- The Federal Reserve decided to keep rates steady at 2%
- Cisco (Nasdaq: CSCO) expects tough times ahead, but investors were happy nonetheless
- The non-manufacturing business index from the Institute for Supply Management showed contraction in July, but is moving in the right direction
- Comp store sales from Costco (Nasdaq: COST) beat estimates, while Wal-Mart’s (NYSE: WMT) were decidedly less positive
- Citigroup (NYSE: C), Merrill Lynch (NYSE: MER), and UBS (NYSE: UBS) are all buying back auction rate securities
- July retail sales disappointed investors
- Jobless claims hit a high, while pending home sales surprised to the upside
- Lower insurance premiums and an unrealized derivative loss at Berkshire Hathaway (NYSE: BRK-A) brought down quarterly results
Commentary
The bulls won a tough tug of war this week and the S&P 500 tacked on nearly three percentage points despite significant down days on Monday and Thursday.
If you’ve been following the market in recent weeks, the playbook hasn’t changed. Investors are still focused intently on the earnings results from financial and retail companies, changes in commodity prices, and everything that says anything about the direction of the economy.
We fared well this week for a number of reasons. Though results from the likes of Fannie Mae, Freddie Mac, and Wal-Mart weren’t particularly good, it’s arguable that they also weren’t as bad as they could have been. Meanwhile, oil and other commodity prices continue to decline. Though it’s unclear whether this is a short correction or the popping of a bubble, investors have been taking it as a good sign all the same.
And while the good news isn’t exactly pouring in on the economy, the economic reports coming out at least appear to be mixed. That doesn’t say that the threat of further economic contraction is behind us, but it at least confirms that we’re not hurtling downward into the abyss.
Looking ahead
I talked a little bit last week about why it’s not worth your time to lose sleep over short term market fluctuations. Building on that a bit, I thought I’d spend a moment talking about why it often makes sense to turn down the volume on the media.
In the end, the media does make information convenient. They (hopefully!) find primary sources that provide useful information and then they put it in front of us in a very readable format. Unfortunately though, the facts are often gelled together with writing that’s intended to not only make the article more interesting, but also to draw readers away from other news sources.
And how do media companies try to draw readers away from competitors? By trying to make the news as exciting as possible. The headlines are all too familiar — every down day on the market is a “plunge” and on every up day the market is “soaring.” A headline from FOXBusiness on Friday read “Olympic-Sized Rally: Dow Soars 225 Points.” Sounds good, but it was only a day earlier that Briefing.com thought things looked bad enough to run a headline “Barrage of Negative News Sinks Stocks.” Of course if you tuned in to Forbes on Tuesday, you might’ve seen “Street Heats Up After Fed Stands Pat.”
I’m all for excitement, but I prefer to get it from TV, movies, and outdoor sports — not my investments. So what’s the solution? You don’t have to throw out your newspapers and erase the news bookmarks on your browser. However, you’ll find it much easier on the stomach to read financial news if you remember that news sources are trying to excite you and get your emotions going while they are also conveying information.
On that note, there will be plenty of ammo for news outlets in the coming week. Earnings will continue pouring out, with many of the all-important retail companies reporting during the week. On the economic side, retail sales, consumer price index, and the consumer sentiment index will likely have the biggest impact on the markets. CPI in particular will be notable as it will have implications for how quickly the Federal Reserve will start raising interest rates from the current 2% level. Moderating energy prices should help stem the growth in total CPI.
As always, a steady, consistent investment plan is the best way to go. You won’t find many in the media espousing such an approach because without constant excitement around the stock market many of these outlets would be out of business. So feel free to continue following financial news, but leave the excitement to Jack Bauer and Chuck Norris.
