A Week in the Rearview – week ending 9/04/09
In the headlines
A look at some of the market movers over the past week:
- The unemployment rate ticked up to 9.7%
- Baker Hughes announced that it would buy BJ Services for $5.5 billion
- Bank failures could test the limits of the FDIC’s insurance fund
- Newspaper operator Freedom Communications declared bankruptcy
- Buyout firm Silver Lake agreed to buy a majority stake in eBay’s Skype for $2 billion
- Bank of America has said that it is ready to repay a portion of the government’s loans
- Disney agreed to acquire Marvel for $4 billion
- Wells Fargo announced plans to repay TARP without issuing new equity
- BP announced that it had struck a major new oil find in the Gulf of Mexico
- Pfizer was hit with a $2.3 billion fine over improper marketing of 13 medications
- Watchdogs revealed that the SEC made major missteps in handling Bernard Madoff
- The Federal Reserve expressed hopes that the recession is ending
- Berkshire Hathaway sold nearly 800,000 shares of rating agency Moody’s
- Bank closures on Friday brought the year’s total to 89
Commentary
Early week losses put a dent in the market’s rally and helped secure a losing week for the S&P 500 index. The index finished the week down 1.2% after dropping the first three days of the week, including a 2.2% decline on Tuesday. The market is now up 12.5% year-to-date and 50% from the low point hit in March.
A pair of significant acquisitions at the beginning of the week couldn’t offset the twin fears that banks still aren’t healthy and that the market has overextended itself in its post-crash rally. On the bearish side of the market two camps have been firing off concerns about the levels that equity markets have reached. One camp still believes that there are significant fundamental problems with the economy, particularly in the financial sector, and that a “double dip” recession is a possibility. The second camp accepts that recent economic indicators suggest a recovering economy, but warn that equity prices have overrun the extent to which the economy has recovered.
While this sentiment certainly seemed to rule the beginning of the week, some optimism crept back into the market at the back end of the week thanks to positive analyst comments and economic reports.
The economic reports during the week were largely positive. The Chicago purchasing manager’s index, the institute of supply management’s index, pending home sales, productivity, and hourly earnings all came in better than expected. Employment, however, still appears to be a drag on recovery. Though the total number of jobs cut in August, as reported by the Department of Labor, was significantly lower than expected, ADP’s employment report, the week’s initial unemployment claims, and the total unemployment rate all came in worse than the market anticipated.
Looking ahead
Next week will be a holiday-shortened week as the U.S. markets will be closed Monday in observance of the Labor Day holiday.
Earnings reports will slow further next week and will only continue to slow ahead of the end of the third quarter later this month. Of the companies that do report in the coming week, few will have enough pull to have any major impact on the rest of the market.
The economic calendar will also be on the light side next week though there will be a smattering of important reports for investors to keep an eye out for. On Wednesday the Federal Reserve will release its Beige Book, which gives a review of the economic conditions in each of the Reserve Banks’ regions. To finish out the week, the University of Michigan will release its preliminary report on consumer sentiment for September. This number is likely to grab attention as a recovery in consumer spending is still seen as a key to a robust recovery of the broader economy.
With a somewhat light schedule for economic and earnings reports, the market action for the week is likely to rely on sentiment and unscheduled events. As noted above, even among the market watchers that agree on the prospects for recovery there has been significant disagreement over how much more the market can gain before valuation becomes a serious concern for investors. This debate will continue into next week and grab a lot of investors’ attention.
To resume its upward climb, the market will have to shake off those valuation concerns, the residue of last week’s pessimism, and concern among some investors about the dubious history of September as the market’s worst month of the year.
