A Week in the Rearview – week ending 6/4/09
In the headlines
A look at some of the market movers over the past week:
- As expected, U.S. automaker General Motors filed for bankruptcy protection
- GM agreed to sell its Saturn unit to Penske Automotive Group and a small Chinese firm picked up Hummer
- Chrysler is nearing a deal to sell its best assets to Fiat
- Ford is planning to increase its production in an attempt to take market share from its bankrupt rivals
- Treasury Secretary Timothy Geithner addressed the U.S.’s debt situation in his first trip to China
- Travelers Companies and Cisco joined the Dow Jones Industrial Average as Citigroup and General Motors were both dropped
- JPMorgan and American Express both raised new capital as a step towards exiting the TARP program
- Federal Reserve Chairman Ben Bernanke spoke out against growing U.S. budget deficits
- Private employers cut 532,000 jobs in May and the unemployment rate hit 9.4%
- The FDIC and Federal Reserve may be pushing for shakeups at Citigroup and Bank of America
- Former Countrywide CEO Angelo Mozilo was charged with insider trading
Commentary
A 2.6% gain to kick off last week was followed by a wavering performance through the rest of the week and the S&P 500 index finished the week up 2.3%. The index is now up more than 4% year to date, and has run up 39% since the low point in March.
The event of the week was most certainly the bankruptcy filing by General Motors. GM became the largest U.S. manufacturer to file for bankruptcy and will receive $50 billion from the government to fund its bankruptcy proceedings. As the filing was fully anticipated by the market, it did not have much of an impact on this week’s market movements.
Also high on the notables list this week was the continued tussle between the U.S. Treasury and recipients of loans through the TARP program. Many of the largest financial institutions that have received TARP money are now very interested in paying back the Treasury. This week the Treasury announced specific fund raising targets that these institutions will need to meet before paying back the loans.
JPMorgan and American Express both announced capital raising programs to meet the Treasury’s targets and could end up the first of the major banks to exit TARP. However, we should expect to see the push-pull between the banks and the Treasury continue for some time.
Economic indicators were likewise a hot topic during the week, with employment numbers headlining the group. The prevailing wisdom continues to be that while the numbers being release are not particularly good, they continue to suggest a leveling out of the economic declines, which many hope will be a precursor to recovery.
It would, however, be a mistake to declare the global economic problems over quite yet, particularly as the U.S. unemployment rate hit 9.4% in May — which was up from 8.9% in April and above the 9.2% expectation.
Looking ahead
Expect mostly crickets out of the earnings calendar next week. Not only have earnings reports trailed off after the first-quarter blitz, but the companies that do report next week will largely be overlooked. The following week we’ll see a few more notable releases, including Best Buy, Fedex, and Research in Motion, but the real excitement won’t begin again until July 7th when Alcoa kicks off the second quarter earnings season.
The economic calendar will be somewhat lighter next week, but there will be a few closely watched releases. On Wednesday the Federal Reserve will release its Beige Book, which gives an overview of economic conditions around the county. Expect to see market watchers key on the details of the Beige Book to confirm or deny the continued stabilization of economic conditions in the U.S.
Retail sales will follow up on Thursday and will also be a key number. With a high percentage of the U.S. economy driven by consumer spending, a substantial recovery would be difficult without a pickup in retail sales. After a 0.4% contraction in April, the market is expecting that May will show a 0.3% pickup.
To some extent many investors and analysts seem to be waiting for some sort of “all clear” sign from the economic numbers. Of course we’re not going to get something quite so clear — more likely we’ll continue to see small directional signs. The beginning of the second quarter earnings season is most likely the next frenzy of truly market moving information.
Between now and then, the key to the market’s direction will be sentiment, as opposed to hard data. If market participants continue to believe that “green shoots” are appearing, then we could continue to see the market creep up as we approach July.
