Smart401k Blog

In the headlines

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

• Fed Chairman Ben Bernanke said that the U.S. economy is on the road to recovery
• New York Attorney General Andrew Cuomo sued Charles Schwab over its handling of auction rate securities
• Japan emerged from its recession by posting a 3.7% annualized growth rate for the second quarter
• Troubled lender CIT posted its ninth straight quarterly loss

• Swedish sports-car maker Koenigsegg Automotive agreed to buy Saab from General Motors
• Manufacturing reports from New York and Philadelphia came in stronger than expected
• The IMF’s chief economist said recovery has begun, but changes need to be made to sustain the recovery
• The government opted to end the “cash for clunkers” program early to ensure sufficient funding
• A coalition that includes Microsoft, Amazon.com, and Yahoo are teaming up to oppose Google’s settlement with book authors and publishers
• Regulators shut down Guaranty Financial in the second largest bank failure this year

Commentary

The market has been deemed back in rally mode as the S&P 500 index posted a 2.2% gain for the week. After a big 2.4% drop on Monday, the index spent four straight days climbing and tacked nearly 5% back on. The S&P is now up 13.6% year-to-date and has rallied 52% from its low on March 9th.

With a somewhat lighter week in terms of big new events, the market moved largely on continued hope of recovery. While a handful of reports such as initial jobless claims came in below expectations, investors latched onto better-than-expected manufacturing reports and some positive data points from the housing sector.

As earnings continued to roll in the market also took cue from retail companies including Home Depot, Target, TJX Companies, Limited Brands, Aeropostale, and Gap that beat earnings expectations. With consumer spending a major component of U.S. GDP, any sign of a recovery in that arena is very encouraging for those looking for overall economic recovery.

Market sentiment was aided further during the week by top economists including the International Monetary Fund’s chief economist and Fed Chairman Ben Bernanke talking optimistically about the recovery prospects for both the U.S. and world economies.

Looking ahead

We’re not beyond the rush of earnings reports yet and there will be plenty more for the market to digest next week. Among the all-important consumer-focused companies reporting will be Big Lots, Chico’s, Guess, Williams-Sonoma, American Eagle, Bebe Stores, J. Crew, and Tiffany & Co. Overall though, there will be few truly notable reports hitting the market next week.

Economic reports are likely to have much more of an impact on the market in the coming week. On Tuesday updates on durable orders, consumer confidence, and the Case-Shiller home price index will be released. The following day we’ll get new home sales and on Thursday we’ll see a preliminary reading on second quarter GDP. Finishing out the week will be growth in personal income and spending as well as the Michigan consumer sentiment reading.

Though all of those reports are likely to get the market’s attention, the most important are likely to be the GDP report along with personal income and spending. The market currently expects that GDP declined at an annualized rate of 1.4%, down from -1.0% in the previous reading. Meanwhile, personal income growth is expected to improve from -1.3% to 0.1%, while personal spending is anticipated to show a moderation from 0.4% to 0.2%.

Broadly though, the dialogue next week should follow the lines that it’s been on for the past few months. That is, we’ll hear much debate over whether a true recovery is taking hold and, maybe more importantly, whether the stock market has already fully priced recovery prospects into prices.

This entry was posted on Saturday, August 22nd, 2009 at 6:22 pm 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.