A Week in the Rearview – week ending 2/27/09
In the headlines
A look at some of the market movers over the past week:
- President Obama presented an outline of his budget
- Economists continued to weigh in on the severity of the current downturn
- JPMorgan Chase slashed its dividend
- In an address to the country, President Obama framed today’s crisis as an opportunity to make long overdue changes
- Federal Reserve chief Ben Bernanke came out strongly against bank nationalization
- Merrill Lynch reported a fourth quarter loss even larger than previously estimate
- Home prices and consumer confidence both continued to fall
- Royal Bank of Scotland reported the largest loss in British history
- Citigroup announced a new deal with the government that will increase the bank’s tangible common equity
- Yahoo! announced significant changes afoot at the company
- Fannie Mae reported its sixth straight quarterly loss
- Dell’s reported lower than expected profit for its fourth quarter
- Jobless claims continued to soar
- GDP contracted at a faster rate in the fourth quarter than originally estimated
Commentary
The past week brought further declines for the US markets despite a 4% rally on Tuesday that wiped out a big drop on Monday. By week’s end, the S&P 500 index had lost 4.5% on the week, extending the index’s loss to 18.6% for the year.
If you took up Scott H. on his challenge to take a weeklong moratorium on the market noise (aka news), you are probably just starting to tune back in now. You can rest assured that you didn’t miss anything new and different over the past week. While the headlines were technically different than past weeks, the content was very much the same. More specifically, investors focused on the US’ top banks and the potential for them to be fully taken over by the US government. Meanwhile, the White House and Federal Reserve were both kept busy during the week trying to reassure investors that the government’s aim is to keep the banking system private.
Potentially a positive highlight amongst the negativity of the week was the speech to the country by President Obama. Though there is little doubt that there are areas where there are deep disagreements between Republicans and Democrats, the President highlighted the underlying strength of the US economy and American spirit, as well as outlined how today’s crisis can be used as motivation to build a stronger country for the future. There is still much to be proven since the projected deficits of the President’s budget have worried many, but right now the economy seems to need confidence and bold action as much as anything else.
Looking ahead
To reiterate what I’ve said over the past couple weeks, though earnings season will still continue for another couple weeks before starting to trail off, investors have mostly tuned out to corporate reports at this point. The market has mostly made up its mind on fourth quarter numbers and is now firmly looking ahead to the first quarter and the whole of 2009. The next time we’ll see major reactions to earnings — with the probable exception of a few financial companies over the next month — will be when Alcoa kicks off the first quarter reporting season in early April.
Economic reports will give us plenty to chew on next week, with many of the important month-end readings coming out for February. Monday will show personal income and spending, while Tuesday’s pending home sales report will give yet another view on housing’s direction. The ADP employment change will give a mid-week read on employment prior to the weekly announcement of initial claims on Thursday and the unemployment rate release on Friday.
On the whole the market is expecting to see nearly all of the economic indicators announced during the week to deteriorate. Notably, unemployment is expected to climb to 7.9%, both ISM indexes are expected to drop, and pending home sales are expected to reverse their December gains. Outside of specific numbers releases, the Federal Reserve will put out its Beige Book report on Wednesday which will almost certainly paint a similar picture to the rest of the recent economic data.
Even with all of this going on, my guess is that the banking system will continue to dominate the headlines next week and beyond. Many see repairing the banking system — and more specifically the twin giants of Bank of America and Citigroup that are bogging it down — as a crucial first step to getting the US economy back on track.
