A Week in the Rearview – week ending 5/29/09
In the headlines
A look at some of the market movers over the past week:
- General Motors is expected to announce bankruptcy next week
- Banks are pushing to be allowed to both buy and sell through the proposed Public-Private Investment Partnership
- Consumer confidence posted an unexpected jump
- U.S. home prices continued to fall, though at a slower pace
- The government may be closing in on a single regulator for banks
- Former Internet pioneer AOL will be spun off from Time Warner
- Oil and gasoline prices have been on a steady climb despite the yet-unsteady economy
- Microsoft announced that it would re-launch its search service as Bing
- The annualized GDP contraction for the first quarter was revised down to 5.7%
- The sale of the bulk of Chrysler’s assets is nearing completion
Commentary
Despite a wavering market, investors finished the week up, with the S&P 500 index posting a 3.6% gain in the holiday-shortened week. Wednesday saw the market slump 1.9%, but three up days of greater than 1% — including a 2.6% jump on Tuesday — drove the week’s gain. The S&P index is now up 36% from its March lows and is in positive territory to the tune of 1.8% for the year.
The dual themes of the week were General Motors and positive sentiment. General Motors dominated much of the front pages as the giant U.S. automaker continues to move towards bankruptcy. At this point, the filing, which will be one of the largest in U.S. history, is expected to come early next week.
Concerns remain that the failure of GM could lead to cascading problems throughout not only the auto industry, but also manufacturing more broadly. Many industry watchers fear that more bankruptcies could follow and contribute to the already troublesome U.S. unemployment rate. The situation, however, has looked less dire more recently as plans have come together that appear likely to keep GM afloat through bankruptcy proceedings and ready to become a revitalized company on the other side.
Sentiment, meanwhile, was a major force in the markets this week. Positive investor sentiment helped the market overlook some of the more disappointing reports of the week including a revised first quarter GDP number that missed expectations and a manufacturing report that was well below the prior month.
Positive sentiment also helped feed further positive sentiment as consumer confidence numbers came in well above what the market had anticipated and sparked hopes that consumers would start spending money again.
Looking ahead
Expect to hear very little about earnings next week as the earnings calendar continues to wind down ahead of second quarter reports. Hovnanian and Toll Brothers, however, both report earnings next week, so the market may key in on any new information they have about the state of the housing market. After next week, it will only be a few odd earnings releases each week until Alcoa kicks off second quarter earnings season in early July.
The economic calendar, on the other hand, is jam packed next week. With the close of the month of May, many month-end (for both April and May) numbers are going to be reported next week. Among them are: personal spending, the Institute for Supply Management’s manufacturing index, pending home sales, factory orders, consumer credit, and unemployment.
After last week’s manufacturing report the market may have a particular eye for the ISM’s manufacturing index to see if it contradicts last week’s numbers. But of course the prime time economic report for next week will be unemployment. Currently, the market expects that the report will show U.S. unemployment climbing to 9.2% in May after hitting 8.9% in April.
Last week I said a key theme would be “digestion” and I continue to see that for the week ahead. Though we had a very positive move last week we have basically seen the market stay flat for nearly a month after running up more than 30%. We now seem to be stuck in neutral as investors and analysts collect data and try to determine what the next direction should be.
