Smart401k Blog

In the headlines

A look at some of the market movers over the past week:

• The July unemployment report came in much better than the market had expected
• The “cash for clunkers” program got a $2 billion shot in the arm
• Bank of America hired a former Citigroup executive and sparked speculation that Ken Lewis is getting closer to retirement
• B of A also settled with the SEC over charges that it misled investors when it acquired Merrill Lynch

• Robert Benmosche will replace Edward Liddy as AIG’s CEO next week
• PepsiCo has agreed to buy its two largest bottlers for $7.8 billion
• Sony released a new e-reader that is priced below Amazon.com’s Kindle
• The Bank of England extended its credit expansion programs
• Fannie Mae announced another major loss and tapped the government for more money
• Hacker attacks hit social networking sites Twitter and Facebook
• Morgan Stanley became the latest major institution to cut its ties with TARP
• Berkshire Hathaway’s bottom line for the second quarter increased from last year
• Embattled insurer AIG posted a second quarter profit

Commentary

The S&P 500 index tacked on yet another 2.3% this week, continuing the rally that began towards the beginning of July. A strong Monday was followed by a midweek lull, but the market finished out the week with a big gain on Friday. Year-to-date, the S&P is now up 12% and it has soared an impressive 49% from the closing low in March.

The government’s “cash for clunkers” program was a source of much discussion during the week as supporters touted the program’s ability to stimulate the economy and help the environment, while detractors suggested the program would do more harm than good for the economy. While it’s too early to judge the wider impacts of the program, it does appear to be bolstering sales numbers for some of the major auto manufacturers.

The government was also cracking the whip this week, going after multiple targets including Bank of America and former AIG CEO Hank Greenberg. B of A settled charges from the SEC that it misled investors when it failed to disclose bonus plans for Merrill Lynch when it acquired the broker. Greenberg, meanwhile, settled with the SEC over charges that he manipulated earnings while he was at the head of AIG.

All the news of the week, however, paled in comparison to the employment report issued on Friday. Employment data showed that fewer jobs were cut in July than expected and both hours worked and pay moved slightly upward. The unemployment rate also edged down from 9.5% to 9.4% despite the expectation of a further rise.

We could of course say that one month’s data does not a recovery make. But even if this doesn’t assure that we’re on the path to recovery, it is a very positive sign that the economy has regained its footing and is, at the very least, stabilizing.

Looking ahead

Earnings will continue in a big way next week, but there will likely be little attention paid to the bulk of the reports. The reports that may still be able to raise eyebrows at this point are those from companies that serve consumers, as investors will be looking for any signs that consumer spending is coming back to life.

Among the notable consumer-focused earnings releases in the coming week are Macy’s, Kohls, Nordstrom, Urban Outfitters, Wal-Mart, Abercrombie & Fitch, and JCPenney.

As investors focus less on earnings, there will be more attention on economic releases and there is a jam packed calendar for next week. On Tuesday there will be releases for second quarter productivity and June’s wholesale inventories. Wednesday, the Federal Reserve will take center stage when it announces its rate decision. As has been the case with the past few Fed meetings, the rate decision itself will be less important than the commentary that accompanies the decision.

On Thursday the retail sales numbers will hit the wires. Excluding auto sales, the market is expecting a 0.1% increase from June. Finally, on Friday, the change in the consumer price index for July will be released.

Early in the week, though, discussion will likely continue to focus on the employment numbers that came out on Friday. The surprise decline in the unemployment rate was taken as a strong sign that the recession is on the wane and recovery could be on the way. In addition, there will likely be a lot of talk about the extent to which the market has rallied off of the March lows and whether there is still room for the market to run further.

This entry was posted on Saturday, August 8th, 2009 at 10:36 am and is filed under SmartUpdate Market News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.