A Week in the Rearview – week ending 7/10/09
In the headlines
A look at some of the market movers over the past week:
- General Motors emerged from bankruptcy
- China continued its rhetoric around replacing the dollar as global currency
- Seven more banks joined the ranks of failed banks in 2009
- The U.S. Department of Justice began probing large telecom firms on antitrust concerns
- Debate swirled about whether there is need for a second stimulus spending package
- Meanwhile, U.S. Treasury Secretary Tim Geithner said that the first stimulus package is on track
- Amid budget woes and the issuing of IOUs to venders, California’s debt rating was downgraded again
- Yet another major Ponzi scheme was uncovered by the SEC
- Google took its rivalry with Microsoft to the next level by announcing that it will be releasing a computer operating system
- The U.S. Treasury finally launched the Public-Private Investment Program
- World leaders at the G-8 summit diverged on whether additional stimulus spending would be necessary
- The International Monetary Fund boosted its 2010 economic outlook
- Alcoa posted a loss to lead of second quarter earnings season, but the loss was smaller than expected
- Citigroup shook up its top management
- Exxon may have hit on a major natural gas find
Commentary
Too many hotdogs combined with a late night of fireworks may have left traders a little sluggish last week after the long Fourth of July weekend. Whether it was a hangover from the long weekend or not, the second quarter continued its rocky start and the S&P 500 index lost 1.9%, thanks in large part to a 2% dip on Tuesday.
That brings the S&P’s losing streak to four straight weeks and puts the year-to-date loss at 2.7%. The S&P index, however, is still up 30% from the low in March.
The recent slide could largely be chalked up to investors beginning to question the supposed stabilization of the economy that drove the big gains through the beginning of June. While there seems to be almost universal agreement that the doomsday scenarios that were once being discussed are now off the table, investors seem far from convinced that recovery will be quick or easy.
But even if it is the economy exerting the biggest influence on investors’ actions, it was the government that was making most of the headlines over the past week. Unsurprisingly, there is a good amount of squabbling along party lines regarding the efficacy of the $787 billion stimulus package that was designed to jumpstart the economy and bring back jobs. Republicans have been suggesting that the package has not done anywhere near what was originally touted, while the Democrats counter that the impact is largely on track and has helped cushion the recessionary blow. Meanwhile, there has been some debate over whether a second stimulus package will be necessary to try and give additional juice to the flagging economy.
The long awaited Public-Private Investment Partnership was also officially launched over the past week. While the original announcement of the program was heralded in the market, in today’s “less bad” environment, many wonder whether there is still a need for the program and contend that banks may no longer be interested in selling assets at distressed prices.
Finally, the second quarter earnings season was kicked off with Alcoa’s earnings announcement. Though it was somewhat lackluster to begin the season with a loss from the aluminum producer, the loss wasn’t as bad as analysts had anticipated.
Looking ahead
Earnings will quickly take over the headlines in the coming weeks. There is little doubt that there will be a much greater focus on the tone of commentary from the respective management teams, but the markets could also benefit if second quarter results weren’t as bad as expected. As investors will likely be looking to form a conclusion on the overall earnings picture and outlook, the first few weeks of earnings announcements will be the most important for the broader market.
The announcements will not yet be at full steam next week, but we still have a slate of significant announcements. On the schedule for Tuesday will be Goldman Sachs, Intel, Johnson & Johnson, and Yum! Brands. Abbott, AMR Corp, and Gannett follow on Wednesday. Finally, Thursday and Friday will bring Google, Harley-Davidson, JPMorgan Chase, Marriott, Nokia, Bank of America, BB&T, Citigroup, General Electric, and Mattel.
Price levels are on the economic docket for next week with the Producer Price Index coming out on Tuesday, followed by the Consumer Price Index on Wednesday. These are key measures of price inflation and have major implications for the Federal Reserve’s rate setting. The “core” measure of both indexes is expected to stay low, suggesting that the Fed could continue to keep rates low without risking near-term inflationary pressures.
Other notable economic releases on the calendar for next week include retail sales, business inventories, and housing starts.
