A Week in the Rearview – week ending 3/20/09
In the headlines
A look at some of the market movers over the past week:
- Much of the week was spent dealing with a furor over bonuses paid to AIG employees
- Cisco announced it will take on a broader part of the tech market by building servers
- Alcoa announced measures to weather the downturn, including cutting its dividend
- The Seattle Post-Intelligencer issued its final print edition
- Activist investor Bill Ackman went after Target’s board
- IBM is in talks to buy Sun Microsystems
- Victims of the Madoff Ponzi scheme got some tax help
- Nokia announced job cuts, as did Caterpillar
- The Federal Reserve steeled itself for a pitched battle against deflation
- Oracle beat earnings expectations and announced a dividend
- Sony and Google are going after Amazon and its Kindle e-reader
- Auto suppliers got $5 billion in government aid
- The Fed launched its TALF program
- Citigroup is considering a reverse stock split
Commentary
Though the week’s gains were nothing like last week’s, the market finished ahead once again this week, closing out with a 1.6% gain. This is the second straight week that the market finished with a gain, and the S&P 500 has tacked on 12.5% over that period.
The news cycle for the week was hijacked almost in its entirety by an uproar raised over $165 million of bonuses paid to employees at AIG. Tempers flared when it was found that the money primarily went to the financial arm of the company, the same arm responsible for the bulk of the problems that forced the government to throw it $170 billion worth of lifelines.
Early in the week, Treasury Secretary Timothy Geithner said that he disagreed with the bonuses, but that they were legally binding. President Obama, however, went against the Secretary and asked him to use any means necessary to recoup the bonuses.
Congress quickly got involved in the situation and called AIG’s current CEO Edward Liddy to testify on the bonuses. A bill was subsequently passed by a large margin in the House of Representatives that would tax the bonuses at 90%. The week ended with Senate Republicans slamming the brakes on the process, suggesting that more sober thought should be put into the situation before rushing through a bill.
Though crowded out a bit by the AIG furor, the Federal Reserve had a meeting earlier in the week. With nowhere to go but up, the Fed kept its rate target steady, and pledged over $1 trillion pump into various parts of the credit market. While the announcement suggests a dedication by the Fed to do everything needed to combat the economic downturn, it has also raised some concerns of future inflation.
Looking ahead
Next week will be the last week of earnings before the first quarter announcements kick off in early April. For the most part they’ll stay in the background, though reports from Deutsche Bank, Best Buy, and KB Home could generate some interest.
The economic calendar will provide some interesting data for the market to digest. Early in the week we’ll get a read on the housing market from existing home sales and new home sales reports. Thursday will bring the final numbers for fourth quarter GDP, and then the week will wrap up with personal income, personal spending, and consumer sentiment. As might be expected, the market is anticipating that all the numbers next week will come in lower than their previous months’ reading.
A safe bet for next week though is that the financial sector will dominate the news again. Early in the week we’re likely to get a little bit more of the AIG story as the Senate debates the bonus tax bill. As we approach the beginning of first quarter earnings season, we’re also likely to get renewed speculation over the upcoming reports from Citigroup and Bank of America.
We’ve had a nice rebound in the markets, so investors will likely be trying to figure out whether it was a quick bear market rally or there is some basis for a sustained recovery. We should expect to see economic data continue to come in on the downside, but the determining factor will be what investors anticipate for six months or a year out.
