A Week in the Rearview – week ending 7/24/09
In the headlines
A look at some of the market movers over the past week:
- CIT Group arranged for emergency financing to allow it to avoid near-term bankruptcy, but more work is needed to stay out of Chapter 11 altogether
- New York Attorney General Andrew Cuomo is suing Charles Schwab over the firm’s handling of auction rate securities
- California lawmakers agreed on a budget proposal that will close the massive $24 billion gap
- TARP watchdogs continue to urge more transparency
- Yahoo redesigned its homepage for the first time since 2006
- Federal Reserve Chief Ben Bernanke defended the idea of the Fed taking on a supervisory role for the financial system
- Goldman Sachs became the first major financial institution to fully shed its ties to the government bail-out program
- Amazon.com bought online shoe seller Zappos for nearly $850 million
Commentary
The markets were looking sharp again this week and the S&P 500 posted a 4.1% increase on the week thanks to four up days. This marks the second straight week of marked gains and the S&P is up more than 11% over that timeframe. The index has now advanced 8.4% year-to-date and is up nearly 45% from March’s lows.
There wasn’t a great deal of news outside of the rush of earnings reports. CIT Group, however, spent more than its share of time in the headlines as it continued to fight to stay out of bankruptcy. The company reached an agreement with a group of bondholders to provide financing that will keep the lender chugging along for now, but it quickly started planning other moves that will hopefully improve its financial position. For now, its future remains very cloudy.
Congress spent significant time with Federal Reserve Chief Ben Bernanke and Treasury Secretary Tim Geithner this week. Among new regulations that were debated was the much-contested plan for a “Consumer Financial Protection Agency.” In a bit of a Washington turf war, Geithner argued for the formation of an agency through the White House, while Bernanke claimed that it is best to keep those responsibilities where they currently are — with the Federal Reserve.
Among the various new regulations that are on the table, the consumer protection group is one of the most hotly contested. Proponents have suggested that it would help avoid repeating the situation of the past few years by protecting consumers from unaffordable loans, while opponents contend that it will put too much power with the government and stifle financial innovation.
The big news of the week, however, came from the flood of earnings reports hitting the wires. Overall, earnings reports thus far have presented a relatively rosy picture as a very high percentage of companies have been reporting earnings in excess of analysts’ expectations. A good portion of reporting companies have also presented relatively favorable outlooks for the second half of the year.
There are, however, some cracks in the positive earnings picture. While there have been some companies such as Apple and Starbucks that have reported year-over-year earnings growth, most companies are still chalking up big declines versus last year’s profits. Some analysts and commentators have also noted that many companies — particularly in the industrial sector — reported revenue below expectations, and only beat earnings estimates through cost cutting.
Looking ahead
Though this past week was very positive, it ended on an odd note with a surprising top- and bottom-line miss from Microsoft. That should set up investors to look towards early-week earnings reports next week to prove that the miss from Microsoft was largely isolated to that company.
There will be no shortage of reports for investors to look to for this reassurance. Monday’s reports will include Amgen, Corning, Honeywell, and Verizon, and Tuesday will add BP, Coach, Deutsche Bank, Textron, The McGraw Hill Companies, Under Armour, US Steel, and Viacom. Wednesday will follow with Aetna, Aflac, ArcelorMittal, ConocoPhillips, Daimler, General Dynamics, Goldcorp, Hess, Honda, Moody’s, Nissan, Qwest Communications, Sanofi-Aventis, SAP, Southern Company, Sprint Nextel, Symantec, Time Warner, Visa, and WellPoint.
Thursday will bring Alcatel-Lucent, Colgate-Palmolive, Expedia, ExxonMobil, First Solar, Kellogg, Las Vegas Sands, MasterCard, MetLife, Motorola, NYSE Euronext, Siemens, Sony, Dow Chemical, Tyco, Walt Disney, and Wynn Resorts. Finally, the week (and month) concludes on Friday with a group that includes Chevron and The Washington Post Company.
Earnings will likely dominate the newswires, but there are some economic releases that could grab headlines. Early in the week we’ll see consumer confidence numbers along with new home sales and the Case-Shiller Home Price Index. Wednesday and Friday will bring the heavier reports though, with the Fed’s Beige Book being released Wednesday and an advanced reading on second quarter GDP coming out on Friday.
If earnings releases continue along the same lines as this past week, we’ll likely see optimism about the coming quarters and 2010 continue. However, expect to start seeing more commentary questioning whether the market’s recent gains have already taken the new information provided by earnings into account.
