A Week in the Rearview – week ending 3/13/09
In the headlines
A look at some of the market movers over the past week:
- Drug-maker Merck announced the acquisition of competitor Schering-Plough
- BNP Paribas reached a deal to buy a majority stake in Fortis Bank from the Belgian government
- Oil prices saw renewed life as traders eyed a potential OPEC production cut
- The World Bank expects that the global economy will shrink for the first time since World War II
- After a hard fought battle, Dow Chemical agreed to purchase Rohm & Haas at the price it agreed to last summer
- Citigroup’s CEO claims the bank is experiencing its best quarter since 2007
- President Obama lifted a ban on federal funding for embryonic stem-cell research
- Ponzi scheme mastermind Bernie Madoff plead guilty to 11 criminal charges
- Roche finally managed to close a $47 billion deal to acquire the rest of Genentech
- Freddie Mac reported a massive fourth quarter loss and tapped more government money
- New York’s attorney general claims that Merrill Lynch misled Congress on its bonus plan
- Ratings downgrades hit both GE and Berkshire Hathaway
- Bank of America’s CEO sees a full year profit ahead for the bank
- Retail sales came in stronger than expected and January’s numbers were revised upward
Commentary
It seemed that whether a recovery was in the cards or not, a rally was certainly to be expected after an extensive period of intense selling — and we finally got that rally. Four out of the five trading days over the past week ended with gains for the S&P 500 and by week’s end the index had ticked up nearly 11%.
Just as financial companies have been the proximate cause of so much selling over the past year-plus, it was some good news for the financial industry that sparked last week’s rally. Early in the week, Citigroup’s Vikram Pandit came out saying that the first two months of the year have looked good for the bank and suggested that it may not need any more assistance from the US government. The S&P tore ahead for a 6.4% gain the day that news came to light. Later in the week came similar stories from JPMorgan and Bank of America helping to drive the rally further.
Additional positive sentiment from the financial arena came from expectations that the government may consider suspending mark-to-market rules and bringing back the “uptick rule.” Many investors and analysts believe that mark-to-market accounting has been a major contributor to the trouble in the financial sector as banks and other financial companies have been forced to mark down their assets to prices from malfunctioning markets. At the same time, there has been speculation that the elimination of the uptick rule — which requires short sellers to sell at a price above the price of the preceding sale — has allowed short sellers too wield too much control as the market declined, and that a reinstatement could short circuit short sellers.
Looking ahead
Though there will be a few notable earnings releases next week, including Nike, Oracle, and Fedex, expect earnings to stay on the back burner. The following week, however, we may be tuning back in as we’ll get a couple very newsworthy announcements. From the US shores Best Buy is scheduled to report which investors will take a hard look at as a reading on consumer spending. Meanwhile, overseas we’ll hear from Deutsche Bank which will give investors some idea whether the stories we’ve been hearing from Citigroup and others have been on the mark. And though it hasn’t officially scheduled its earnings release yet, we should also be hearing from Goldman Sachs within the next couple weeks.
We’ve got a full slate coming at us on the economic calendar. At this point really any reading on business activity will be used by the market to weigh the state of the economy, so capacity utilization and industrial production early in the week may get some attention along with the leading indicators later in the week. Though not dominating the front pages as much any more, housing remains a concern and the reports on building permits and housing starts should be noted. Both are expected to decline from last month.
Both the consumer and producer price indexes will be reported in the coming week. The view on both of these measures has changed since oil prices hit the skids and the economic decline began to accelerate. The reports next week will have less impact than in past months, and investors are more likely concerned about slower growing or declining prices than they are about rapid inflation.
The centerpiece of the economic calendar for the coming week, however, will be the Federal Reserve’s meeting. As was the case at the last meeting, investors seem nearly positive that the Fed will keep their target rate at the 0% to 0.25% level that it is currently at. But while the rate target is unlikely to be news to investors the Fed’s comments on the economy will be very closely watched and could have an impact on the markets.
Even with all of that going on, it’s hard to expect that the spotlight will be stolen from the banking sector. Rightly so, investors seem to be keyed in on the stability of the banking system as a precursor to any real economic or financial stabilization taking place. Any news coming from the banks or outside analysis of the banks is likely to get top billing once again next week.
