A Week in the Rearview – week ending 6/20/09
In the headlines
A look at some of the market movers over the past week:
- Leaders from the so-called BRIC countries met to discuss their role in the global economy
- Iran was thrown into turmoil when the results of its recent presidential election were disputed
- The IMF raised its outlook for the U.S. economy
- The White House proposed an overhaul of the U.S.’s financial system
- Extended Stay Hotels and Eddie Bauer filed for Chapter 11 bankruptcy
- The Treasury rejected a request for additional aid to U.S. auto parts suppliers
- A jump in housing starts was a pleasant surprise for the market
- California continued to struggle with its budgetary problems
- Ten banks repaid their TARP borrowings to the Treasury
- The increase in the consumer price index was smaller than expected
- Allan Stanford was jailed in an alleged $7 billion fraud
Commentary
The S&P 500 index finished the week with a 2.6% loss, the index’s first weekly loss since the beginning of May. The S&P, however, is still up 36% since the March lows, and is still 2% in the black for 2009.
The losses for the week were primarily driven by a shift in investor sentiment. With little new data available to guide the market upward investors have been alternately letting the market drift and taking some profits from the recent bounce. Some experts also have been debating the idea that there is a recovery taking root — they argue that there are still considerable threats to the economy and so caution is in order.
While not as much of a market mover, the big headline news of the week came from the White House’s proposed overhaul of the U.S. financial system. The plan seeks to close up regulatory gaps and loopholes by anointing the Federal Reserve to oversee the financial industry more broadly. The Fed would not only help make sure that major financial institutions don’t put themselves at risk, but it would also help prepare contingency plans for dissolving large institutions should they run into trouble.
The overhaul also provides for the creation of a consumer protection agency that will monitor the types of products that banks offer to customers in an effort to keep consumers safe from predatory practices.
There seems to be some consensus that there needs to be changes within the financial regulatory structure, but some seem to think that the White House’s plan goes to far while others don’t believe that it does enough. Expect to hear more coverage on this next week as Congress debates how to implement changes and whether the Fed is an appropriate top-level player in the new regulatory structure.
Looking ahead
There will be a few notable earnings announcements next week including Walgreens, Nike, and Accenture. Additionally, KB Home and Lennar will report which will provide additional data points on the ever-important housing market.
The rate decision by the Federal Reserve on Wednesday will overwhelm the economic calendar next week. As in other recent decisions, the rate decision itself should be of little consequence as the Fed futures market implies near unanimity that the Fed will maintain the current rate target of 0% to 0.25%. The commentary by the Fed will be very important though, since market participants will be analyzing that to gain clues about where the Fed sees the economy going and how long it plans to keep such an accommodating rate target.
Stocks may drift through next week as debate continues on the regulatory overhaul of the financial system and investors are largely left without major data points to direct them. The unexpected could start to play a role in next week’s movement — with second quarter earnings season approaching we could start to see companies preannounce better- or worse-than-expected earnings.
