A Week in the Rearview – week ending 7/3/09
In the headlines
A look at some of the market movers over the past week:
- Ponzi scheme mastermind Bernie Madoff was sentenced to 150 years in prison
- Pipeline company Enterprise Products Partners agreed to purchase Teppco Partners for $3.3 billion
- The U.S. Department of Justice opposed a plan that would have United Airlines and Continental cooperate on worldwide routes through the Star Alliance of air carriers
- The FDIC presented new rules for the purchase of failed banks by private equity firms
- China postponed the introduction of tougher rules on computer filtering software
- California is now set to issue IOUs to some state venders
- Consumer confidence unexpectedly fell in June
- Auto sales fell across the board in June
- Auto supplier Lear declared Chapter 11 bankruptcy
- The U.S. lost more jobs than expected in June, and unemployment hit 9.5%
Commentary
Thanks in large part to a 2.9% drop on Thursday, the short week provided the S&P 500 index with its third straight losing week. Though the last trading day of the week came with typically low pre-holiday volume it nonetheless drove the continued slide of the index. The S&P has now dipped back below even for the year though it is still up nearly 33% since its March low.
Employment was the major market-moving factor over the past week. The overall unemployment rate came in at 9.5%, which was actually below the 9.6% rate that was expected. However, total job losses in June clocked in at 467,000, which was worse than the 367,000 that the market was counting on.
As I’ve noted in the past, consumer spending makes up the bulk of the economic activity in the U.S. For that reason, factors that impact the prospects for a rebound in that area are being keenly watched by market analysts. Employment levels certainly qualify as an important metric since jobless consumers are more financially constrained consumers.
Though there were quite a few other economic reports that were released during the week, it was a pretty quiet week overall. Not only were many traders likely taking off early for the 4th of July holiday, but many investors may be sitting on the sidelines waiting for the initial burst of second quarter earnings results.
Looking ahead
The wait is over. Wednesday the 8th will “officially” kick off second quarter earnings season with the release of earnings from aluminum maker Alcoa. A handful of other major companies, including 3Com, Chevron, and Progressive, will also report during the week. The week following will turn up the pace of reports a bit more, and then by the week of July 20th earnings season will be in full swing.
It seems unlikely that the reported second quarter results will provide investors with much they don’t already know. The first half of 2009 has been a very tough environment and that is likely to be reflected by poor earnings.
With every earnings report, though, management includes some commentary on the results and often the outlook for the coming quarter as well. In addition, most publicly listed companies hold conference calls to discuss the results with investors and analysts. The earnings commentary and the conference calls are likely to be much more closely watched as investors look for signs that the business environment is starting to show at least some signs of stabilization.
Economic reports, on the other hand, are going to be light next week and are unlikely to have much impact on the markets.
For a few weeks now, I have been building up to the beginning of second quarter earnings season, and for good reason. A significant amount of optimism has crept back into the markets after a very bleak period of declines and uncertainty, and second quarter earnings reports is where the rubber will meet the road on those optimistic expectations. Expect that the tone of the earnings reports will go a long way toward setting the tone for the second half of the year on the markets.
