A Week in the Rearview – week ending 8/28/09
In the headlines
A look at some of the market movers over the past week:
- GDP shrunk less than expected in the second quarter
- Warner Chilcott agreed to buy Procter & Gamble’s drug unit for $3.1 billion
- Economist Nouriel Roubini said the risk of a double-dip recession is rising
- Foreign financial companies may start to play a bigger part in mopping up failed U.S. institutions
- Federal Reserve chief Ben Bernanke got the nod for a second term
- U.S. courts ruled that the Federal Reserve will have to release records of its emergency bank loans
- The SEC raised questions over some of the guidance that Goldman Sachs gives to its clients
- The stocks of Fannie Mae and Freddie Mac soared on seemingly no news
- Israel became the first central bank to start hiking interest rates, while Sweden went the opposite way into negative interest rates
- The White House released new deficit projections
- An early-week reading of consumer confidence showed marked improvement while a later-week report was more tepid
- The sales slump in the auto market pushed Toyota to scale back production
- Home prices are showing some life after the crash
- Microsoft cut the price on its Xbox 360 system to try and spur sales
- The list of problem banks that the FDIC watches rose to 416
- Apple’s iPhone will go on sale in China in the fourth quarter
- Dell’s second quarter results came in above expectations
- Intel boosted tech stocks by raising its sales forecast
Commentary
The market was up once again this week, though conviction seemed to wane slightly. The S&P 500 index finished the week up 0.3% after see-sawing through most of the week. The index is now up 14% year-to-date and 52% from the bottom it hit in March.
While the market was tepid, there were a handful of stocks that were anything but. Fannie Mae finished up 70% from where it started the week, AIG tacked on 53%, and Citigroup and Freddie Mac also posted significant gains. Early in the week the collection of Fannie Mae, Freddie Mac, Citigroup, and Bank of America accounted for as much as a third of total NYSE trading volume.
Most market watchers seemed to deem the action in those shares pure speculation, but with little news driving the huge volume it’s difficult to know for sure.
The economic news during the week was largely positive. A revised reading on second quarter GDP confirmed the slower-than-expected drop of 1%. Jobless claims, meanwhile, fell from the prior week and workers collecting long-term unemployment dropped to the lowest level since April. Housing prices also contributed to the encouraging data as the Case-Shiller home price index showed a second straight month of gains.
In Federal Reserve news, Chairman Ben Bernanke was appointed to a second term by President Obama. The President credited Bernanke with keeping calm and acting decisively in the face of one of the worst financial meltdowns the country has seen.
Looking ahead
While earnings reports will continue into next week, it’s a much lighter schedule and will peter out further in the following week. Most of the companies that do report during the week are relatively low profile and should have limited impact on the rest of the market.
The end of the month, however, brings a full slate of economic reports next week. Construction spending and the Institute of Supply Management index will kick off the major reports on Tuesday. Wednesday the Federal Reserve will deliver its rate-setting decision, but, as has been the case for a number of meetings now, the rate seems predestined to stay at the 0% to 0.25% range. The Fed’s commentary that it provides with the rate decision should be more enlightening though.
Employment will be the likely focus of the week though. On Wednesday ADP delivers its employment change report, which will foreshadow the results of the unemployment report later in the week. Currently, the market expects that the unemployment rate will tick up to 9.5% from 9.4% last month. Additional employment data will come from hourly earnings and average work week reports on Friday.
