A Week in the Rearview - week ending 8/22/08
In the headlines
A look at some of the market movers over the past week:
- BHP Billiton (NYSE: BHP) announced a strong quarter on the back of rising commodity prices
- Home prices are continuing their slide
- Profit at Home Depot (NYSE: HD) continued its slide in the second quarter, but beat estimates
- Shareholders green-lighted the acquisition of NYMEX (NYSE: NMX) by CME Group (NYSE: CME)
- Lehman Brothers (NYSE: LEH) may be getting ready to sell its asset management business — that’s if it can avoid being the target of a hostile takeover
- Hewlett-Packard (NYSE: HPQ) managed to top Wall Street’s expectations
- The producer price index for July was well above what was anticipated
- Crude oil continued to be volatile and finished the week up slightly
- Yet more investment banks reached agreements regarding auction rate securities
- Gap (NYSE: GPS) managed to post better-than-expected earnings
Commentary
An upswing in the second half of the week couldn’t make up for a rough start and the S&P 500 fell 0.5% on the week.
There’s really not a whole lot to say about the past week, as it progressed largely as expected. Though earnings were still coming out, the market has already largely looked past them and on to next quarter and second half earnings, along with the broader economic picture. So the market moved largely on speculation about where the economic downturn is in relation to the bottom, as well as how much further financial companies will have to write-off. As has been the case in recent weeks, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) were at blame for a lot of the negative headlines during the week.
Meanwhile, oil continued to play a big part in investor sentiment. Global political concerns, specifically regarding Russia, sent oil up, though not by much. The size of the increase of producer price index did raise eyebrows, though inflation concerns continue to be damped at least to some extent by the moderating commodity prices.
Looking ahead
Expect the unexpected next week — again. There will be a few important economic reports out next week including a report on second quarter GDP, the minutes from the most recent Federal Reserve meeting, consumer confidence, consumer sentiment, and personal income. Any one of these releases has the ability to move the markets if the actual results are out of line with expectations. Keep in mind that there will be a lot of talk about the fact that GDP in the second quarter — which is expected to have grown at a 2.7% annual pace — got a big boost from the government’s tax rebate program.
The coming week is the last big week of earnings before reports start settling down again in anticipation of the end of the third quarter. The market will likely overlook most of the earnings reports next week as it continues to focus on the bigger picture issues.
Once again, look out for speculative reports about Fannie, Freddie, Lehman, and their ilk to be the primary factors in the market next week along with continued debate about the condition of the economy. If the market repeats its pattern of the past couple of weeks, pessimism will rule the roost early in the week before the outlook softens at midweek and finishes just slightly up or down.
While there are plenty of very smart people out there — economists, stock analysts, and the like — that are analyzing the economy and the markets, trying to base an investing strategy on them is likely to prove frustrating at the least and disastrous at the worst. The reason is that most of the time for every bright, accomplished analyst who holds a certain opinion, you will be able to find a similarly bright and similarly accomplished analyst who has an equally convincing and diametrically opposed viewpoint. At the same time, the speed at which markets move and the extent to which they try to anticipate turns means that by the time great numbers of smart folks start to agree, it’s already too late to act on those opinions.
So what’s the solution? You got it — stay out of the guessing game completely and maintain a well crafted, steady investment plan that you continue to contribute to through thick and thin.
