A Week in the Rearview – 1/02/09
In the headlines
A look at some of the market movers over the past week:
- Kuwait pulled back on its planned joint venture with Dow Chemical
- Most retailers were left out in the cold this holiday season
- The Treasury gave $6 billion to GMAC in an effort to keep the auto lending business alive
- Billionaire Kirk Kerkorian sold off the last of his once-large Ford stake
- Commitments for the Treasury’s TARP program have now exceeded the $350 billion that’s been authorized so far
- Home prices around the country continue to fall and consumer confidence has followed suit
- Bank of America completed its $33 billion purchase of Merrill Lynch
- The FDIC is looking towards a Savings & Loan era tool to help the banking industry
- A major manufacturing index finished December at a multi-decade low
Commentary
Kuwait’s about-face on its deal with Dow put a pall on the beginning of the week, but the approval of TARP funds for GMAC along with some positive sentiment about the dawn of a new year helped push the S&P index up 6.8% for the week.
Aside from the two events mentioned above and the dour report from the ISM manufacturing index, there really isn’t a whole lot to look back on in this New-Years-abbreviated week. However, this is probably a good time to take a quick look back at the year that is now in the rearview.
Though the rumblings of the financial crisis started in the summer of 2007, the real quaking, and the major stock market declines, came during 2008. The near failure and fast sale of Countrywide Financial to Bank of America was one of the first major consequences of the collapsing credit markets. The failure of Bear Stearns, which followed just a few months later, was an even bigger sign of the extent of the problems. The markets rallied through May, though, on the hopes that Bear Stearns signaled the end rather than the beginning.
Between May and July the markets trailed back down, and though they stayed relatively flat through the beginning of September, the failure of IndyMac in July — the fourth largest bank failure in US history — signaled the start of the next wave of bad news. September followed with some of the worst news, including the bankruptcy of Lehman Brothers, the near bankruptcy of AIG, and the quick sale of Merrill Lynch to Bank of America. The markets rallied again into the Presidential election, only to crater afterwards.
Between the mid-November nadir and the end of the year, the S&P index recovered 20%. The year ended, though, with as many questions as answers, as poor economic data and a market still 40% below its previous peak has kept pessimism high.
Looking ahead
Looking ahead to the new year, the obvious question is whether we will see a recovery in the stock market in 2009. That, in turn, will depend on whether investor sentiment turns more positive and the US and global economy is able to find some surer footing at some point during the year. This is, of course, what we will be following right here week by week as the year unfolds.
The immediate focus, though, is on what we will be looking at in the coming week. Despite the nearly 7% advance in the S&P index over the past week, investors and commentators alike are focusing more on the trading this coming Monday and the rest of the week, as volume has been low over the past week due to the holidays. While a positive first day of trading for 2009 was certainly a welcomed sight, the market’s direction on Monday may present a better picture of current investor sentiment.
Earnings will be light in the coming week, though there will be a couple of notable announcements including Chevron and KB Home. Alcoa, traditionally the company to kick off a new earnings season, is scheduled to report its fourth quarter earnings a week from Monday, so we can expect to see the rush of earnings begin then. What we can look for over the next week are pre-earnings announcements from companies that expect to make or miss earnings by a sizeable margin.
Next week will, however, be a big week on the economic front. Monday will bring construction spending along with auto and truck sales, followed by factory orders and the ISM services index reading on Tuesday. Thursday we’ll see the weekly reading for initial unemployment claims, and then Friday will bring a number of employment measures, including the unemployment rate. The market is currently expecting the unemployment rate to jump from 6.7% in November to 7.0%.
It may be a new year, but we’ll be sticking with the same strategy that we’ve been advocating all along. Namely, we recommend continuing to be invested in a diversified portfolio, and adding to that portfolio on a regular basis. Investing regularly allows you to take advantage of the lower price levels that the market is currently at without having to make a perfect “bottom” call — a call that is all but impossible even for professionals.
While there are undoubtedly some readers who would like to see a projection made here for what the market will do in 2009, I believe a call like that is not only a bit of a shot in the dark due to the extreme volatility we’ve seen lately, but it would go against the strategy just suggested above. The market may rebound in 2009 or it may see some further declines, either way we believe you should be continuing to invest to take advantage of not just a single year’s market advance, but the much larger advance over the next ten, twenty, and thirty years.
