A Week in the Rearview – week ending 4/03/09
In the headlines
A look at some of the market movers over the past week:
- Pending home sales posted moderate gains
- The Financial Accounting Standards Board eased rules on mark-to-market accounting
- The House and Senate separately approved the President’s budget for 2010
- Unemployment continued to climb, hitting 8.5%
- Despite recent aid to the automaker, President Obama is signaling that bankruptcy may be the eventual course for General Motors
- Fellow aid recipient Chrysler may have even less chance of avoiding bankruptcy
- The G-20 summit made waves as world leaders discussed the slumping global economy
- Japan prepared for another stimulus package to aid its struggling economy
- Four small banks became the first recipients of TARP funds to return the money
- Newspaper publisher Sun-Times Media Group filed for bankruptcy
- Spending and commitments for the US financial rescue is approaching the value of total US GDP
- Dow Chemical closed its highly contentious acquisition of Rohm & Haas
- Thornburg Mortgage announced plans to liquidate
- Even with Madoff in jail, fallout from his massive Ponzi scheme continues
- GE and Intel announced a healthcare partnership
Commentary
The rebound continues. Despite a 3.5% drop on the S&P index to start the week, the market finished the week up 3.3%. That builds on last week’s 6.2% gain and brings the increase over the past month to 21%. Losses for the year have now been pared to just under 7%.
If we pare down a week’s worth of news we can probably stick to three main events that gave the market its direction. First and foremost there was the G-20 summit, which brought together leaders from around the world to discuss potential ways to address the global recession. Though not much — aside from photo-ops — was expected out of the gathering, there seemed to be significant meeting of minds on financial regulation and America’s place in the global market of tomorrow. At the same time, the group agreed to up the amount of funds available to the IMF to help address the global crisis.
Potentially no less important in the near term, but certainly overshadowed by the G-20 summit, was FASB’s changes to mark-to-market rules. A slight modification of accounting rules will now allow managers to classify certain assets such that they will not need to be marked down to distressed market values. This will help banks meet regulatory capital requirements and some believe the change could show up as additional profits for banks in the coming quarters.
The third major event of the week was simply the continued positive momentum and attitude surrounding the market. Psychology plays a meaningful part in the stock market and the broader economy, so we shouldn’t underestimate the potential impact of positive sentiment starting to flow again.
It’s worth noting that we ended the week with gains despite the announcement of yet higher unemployment to finish the week. It seems that at least for now market participants are accepting that we may see economic measures continue to deteriorate for a period of months, but that they are prepared to begin turning some time before the beginning of 2010.
Looking ahead
Next week will bring us the first major test of the nascent market recovery as first quarter earnings season begins. As is tradition, Alcoa will kick off the season on Tuesday with its report after the close of the market. Bed, Bath & Beyond will also report on Tuesday, while we’ll see Chevron’s report on Thursday. The week following will bring some particularly heavy hitters with Goldman Sachs, Intel, Johnson & Johnson, Google, Harley-Davidson, JPMorgan, Nokia, Southwest Airlines, BB&T, Citigroup, and GE all reporting.
As you prepare for the flood of earnings to come, bear in mind that most investors will be expecting lackluster results from the first quarter, but will be intently focused on the management teams’ expectations for the rest of the year.
The beginning of earnings season will be on the backdrop of a quiet week for economic reports. Consumer credit may get some attention on Tuesday and initial unemployment claims will also get its due, but don’t expect too much from the economic calendar.
Companies in the “red zone” will likely continue to be the subject of most news coverage. The tribulations of carmakers General Motors and Chrysler have the potential to edge out the banks, as both companies appear to be on the verge of bankruptcy filings. Don’t count out buzz over the banks though. Particularly with Goldman, JPMorgan, and Citigroup preparing to report first quarter numbers next week, speculation over what those reports will hold may hit the wires. Along with all of this, now that the market has bounced back over 20%, expect continued coverage of that rebound and whether it’s a true recovery or just a bear market bounce.
