A Week in the Rearview – week ending 6/12/09
In the headlines
A look at some of the market movers over the past week:
- The U.S. Supreme Court cleared the way for Chrysler to exit bankruptcy
- Airlines are bracing for a tough 2009
- China set new regulations forcing computer makers to put website-blocking software on all new computers in the country
- Ten banks were given the green light to begin repaying TARP funds
- Apple announced a price cut for its iPhone and released lower-price notebook computers
- Bank of America’s Ken Lewis came under fire over the bank’s acquisition of Merrill Lynch
- The White House appointed a “pay czar” to oversee executive compensation at aid-receiving institutions
- Auto parts suppliers petitioned for another round of government aid
- The Fed’s Beige Book showed some bright spots in the otherwise weak economy
- Oil fell at the end of the week, but has risen to over $70 per barrel
- BlackRock became the world’s largest money manager
- The WHO announced that the swine flu has reached pandemic status
Commentary
It was a sleepy week for the markets with a mix of very mild up and down days. By the time the week petered out, the bulls had pulled slightly ahead and the S&P 500 index showed a 0.7% gain for the week. The S&P is now up 4.8% for the year and 40% from the lows in March.
If we were to pick out the focus points of the week, we’d likely be looking at autos, banking, and the general economy. U.S. auto manufacturing continued to be in the news this past week as General Motors moves ahead in its bankruptcy proceedings and Chrysler prevailed in its bid to wrap up its bankruptcy.
Chrysler’s case made it all the way to the Supreme Court before bond-holders were denied and the bankrupt automaker went through with its proposed asset sale to Fiat. And as if we needed an extra reminder of the sorry state of the auto industry in the U.S., auto parts makers went back to the government this week looking for additional aid.
Banking meanwhile also continued to dominate the headlines. This week it was largely due to the go-ahead that ten banks got to return TARP funds. Though the government emphatically stated that the repayments didn’t mean the finance sector had been repaired, it’s certainly something we can take as a positive sign.
Bank of America also found itself under some intense spotlights this week as Congress continues to explore the questionable circumstances surrounding the sale of Merrill Lynch to Bank of America. While this story will grab some headlines, it seems unlikely that it will have a material impact on the markets.
Finally, economic data was a positive force in the markets as retail sales posted strong numbers and the Federal Reserve’s Beige Book detailed some positive developments. At the same time, a weak 10-year Treasury bond auction early in the weak was followed by a much stronger 30-year auction that helped boost markets in the second half of the week.
Looking ahead
Heading into next week we’ll have a few things to look out for. The earnings calendar will again be light, but there are some notable releases next week that could have some broader market impact. On Tuesday Best Buy and Adobe Systems report, FedEx follows on Wednesday, and Research in Motion will chime in on Thursday.
On the economic front we’ll get readings from the construction market, including building permits and housing starts. More importantly though, the consumer and producer price indexes from May will be announced. As the Federal Reserve continues to support economic recovery with rock-bottom interest rates, it will be watching these numbers closely for early signs of price inflation. A weak economy that starts to show signs of inflation could put the Fed in a difficult position. It’s expected that the overall CPI will show a drop of 0.9% while the “core” CPI will have notched a 0.1% uptick.
What may be more interesting than either earnings announcements or economic releases will be the market’s pep after such a slow week. While the market has been unpredictable and highly volatile during this recession, it’s possible that we could continue to see calm waters for the next few weeks as investors digest the bounce that the market has already made and wait for the new data that will come with second quarter earnings season.
