A Week in the Rearview – week ending 6/26/09
In the headlines
A look at some of the market movers over the past week:
- The World Bank revised down its outlook for the world economy
- The Federal Reserve made its first move to scale back its massive efforts to right the U.S. financial system
- Intel landed Nokia as a customer for its mobile chips
- Oracle’s earnings beat expectations, while Nike disappointed with its outlook
- Citigroup announced plans to raise salaries in response to cuts in bonuses
- Boeing announced yet another delay to its 787 Dreamliner and Qantas canceled an order for 15 of the plane
- The Organization for Economic Cooperation and Development (OECD) raised its outlook for its 30 member nations
- The Federal Reserve left its target rate unchanged and said it will keep up with its planned debt purchase program
- California’s struggles with budgetary issues may force the state to issue IOUs
- Some cash-strapped banks have had to suspend dividends owed under TARP
- China escalated its dispute with Google by blocking access to the search site
- Buyout firm KKR is pushing ahead with plans to list publicly
- Federal Reserve chief Ben Bernanke testified in a House of Representatives session about the handling of the Bank of America Merrill Lynch merger
- UBS raised $3.5 billion in a share sale and announced that it expects a second quarter loss
- Auto parts supplier Lear may be close to a bankruptcy filing
- Five more banks were seized by regulators bringing the year’s tally to 45
Commentary
Two down days out of five left the S&P 500 index with a small loss for the week. Most of the week’s loss came from a big 3.1% drop on Monday that a strong session on Thursday couldn’t quite level out. The index is now up 36% from its March low and is 1.7% in the black for the year.
The major market-moving event of the week came on Monday when the World Bank gave a dampened view of the prospects for the world economy. The organization said that the world economy will shrink 2.9% for 2009, a sharp adjustment from its previous prediction of a 1.7% drop. The news seemed to confirm for many the fear that recent optimism about recovery has been premature and led to a sharp round of selling.
In contrast to the World Bank’s report though, the rest of the week brought some more welcome news for investors. The OECD announced that its 30 member countries would see a slight expansion in 2010, an upgrade from the small contraction that it had previously expected. Additionally, final first quarter GDP was revised to show a 5.5% rate of contraction versus the previous reading of -5.7%.
The Federal Reserve also played a central role in the week’s events as it had a rate-setting meeting. The Fed left its target rate unchanged at 0% – 0.25% and kept its debt purchasing program in place. Though the Fed’s press release contained cautionary language backing up the decision to keep its target rate low, it also noted that the pace of economic contraction appears to be slowing.
Looking ahead
It will be a holiday-shortened week due to the observance of the Independence Day holiday in the U.S. Accordingly, earnings announcements will be lighter this week than they have in weeks past. This, however, will be the calm before the storm as Alcoa kicks off second quarter earnings season the following week.
Investors should prepare themselves for the onset of earnings season as it will likely set the tone for the stock market in the second half of the year. Results themselves are unlikely to be in the spotlight as market participants have already digested the fact that conditions were still very difficult during the quarter. The outlooks and expected future orders for companies reporting earnings will be crucial though, as it will be seen as a sign whether the economy is actually beginning to see some improvement.
The end of June and beginning of July will mean that the week will have more than its share of economic reports. Tuesday will bring the Case-Shiller Home Price Index report which will supply some information on the housing market and it will be followed with reports from the construction, manufacturing, and auto sectors on Wednesday. Thursday will feature a barrage of reports highlighted by the unemployment rate. Unemployment is expected to worsen to 9.6% from May’s 9.4%.
Despite the number of economic reports, next week may turn out to be a relatively quiet week for the markets as trading calms before the holiday and investors await second quarter earnings. Earnings preannouncements though, could find their way into the mix and may disturb the pre-holiday calm (either positively or negatively).
