A Week in the Rearview – week ending 3/27/09
In the headlines
A look at some of the market movers over the past week:
- The US Treasury announced its public-private investment partnership
- Daimler scored a $2.7 billion investment from the UAE’s Aabar Investments
- New home sales unexpectedly rose in February as prices continued to fall
- A Bank of America shareholder launched a campaign to oust CEO Ken Lewis from his chairman post
- Treasury Secretary Tim Geithner suggested a regulatory overhaul to prevent future problems
- Even as market sentiment improved three banks and two credit unions folded
- China made waves by suggesting the replacement of the US dollar as the world’s reserve currency
- Romania received billions from the IMF and became the third EU country to be bailed out
- General Motors may be positioned to get more government aid
- A $200 million payment from MGM kept the lights on at its CityCenter development
Commentary
These past three weeks have shown exactly why it’s tough to try and guess the short term direction of the market. After pessimism had been cranked up to nosebleed levels, the market made an abrupt turnaround and the S&P 500 index has now posted a nearly 20% gain over the past three weeks. This past week chalked up a 6.2% gain and the index’s bull run has pared the year-to-date losses to just under 10%.
Investors rode positive sentiment into the week after two straight weeks of gains. Further stoking the fire early in the week was the announcement by Treasury Secretary Tim Geithner that the government would be launching a public-private investment partnership (PPIP) in which the government would work with private investors to purchase the toxic assets from banks’ balance sheets. Concerns over the yet sketchy details of the plan did little to dampen investors’ enthusiasm.
The hope of the PPIP is that a combination of government and investor money would get to work cleaning up the capital position of US banks, thereby setting a foundation for a broader economic recovery. Critics of the plan aren’t sure that it will be enough to shore up the banks. The reaction of the market, however, suggests that investors have a very different take.
Seemingly riding the wave of newfound support after the PPIP announcement, Geithner made further headlines during the week for coming out strongly in favor of a major regulatory overhaul that could help prevent similar problems from manifesting in the future. One of the major features of Geithner’s proposal would be increased government oversight on non-bank financial institutions and the power to unwind institutions like AIG similar to the way the FDIC is able to deal with banks.
Less prominent though still notable during the week were the housing market reports. Home sales continue to be way down from last year, not to mention the peak, but better than expected sales in February suggest that plummeting prices are attracting buyers. The high number of vacant homes mean that absorption may be a slow process, but a step in the right direction is a positive sign.
Looking ahead
Earnings will be particularly quiet next week, but don’t get too used to it — a week from Tuesday Alcoa will open up the first quarter 2009 earnings extravaganza. Though there may not be a whole lot of earnings chatter in the market right now, we should fully expect that it will quickly dominate the headlines once the announcements begin. While there has been much speculation about what the first quarter will hold, the hard numbers will tell their own story. At the same time, we’ll get to hear the outlooks from companies’ management teams on the rest of the year.
With the close of March next week, the economic calendar will be jam packed with March data reports. Most important will be the twin employment releases, ADP on Wednesday and then the unemployment rate on Friday. The Institute of Supply Management report on Wednesday, factory orders on Thursday, and average workweek on Friday are additional reports to keep an eye on.
It’s going to be off the earnings and economic calendar that most of next week’s news will come though. Financial companies have dominated the news and they will continue to. The sell-off on Friday was fueled by comments from US bankers, including JPMorgan’s Jamie Dimon, suggesting that March was a more difficult month for the industry than the first two months of the year. With first quarter earnings announcements on the way, we may see analysts and pundits delve further into the prospective results from the banks.
At the same time, proposed new financial regulations from the US government made waves in the second half of the week and could see further debate into next week.
Looking specifically at the stock market, on the back of the nearly 20% run that we’ve seen, we’re likely to see more investors wondering whether the run can continue and if it is the beginning of a true recovery or just a bear market rally.
