Smart401k Blog

In the headlines

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

• Banks are preparing to prepay FDIC fees through 2012 to shore up the insurer’s balance sheet
• A handful of pension funds sued Bank of America over its deal with Merrill Lynch
• Lender CIT announced a debt swap agreement to help it avoid bankruptcy
• The IMF cut its forecast for global bank loan losses

• Home prices continued to show month-over-month gains
• Consumer confidence fell, raising concerns over the upcoming holiday season
• Bank of America’s CEO Ken Lewis announced that he is stepping down at the end of the year
• The acquisition of General Motor’s Saturn brand by Penske fell apart, paving the way for a wind-down of Saturn
• Cisco agreed to pay $3 billion for Norwegian video conferencing company Tandberg
• The Institute of Supply Management’s index posted a surprise decline
• General Electric and Comcast are in talks that may have Comcast buying a major stake in NBC
• The unemployment rate ticked up to 9.8% in September

Commentary

For a second week in a row, the market gave up ground, losing 1.8% by week’s end. A 1.8% jump on Monday was followed by four straight days of selling, including a 2.6% drop on Thursday. The S&P 500 index is now up 13.5% year-to-date and nearly 52% from the lows in March.

The primary driver of the declines for the week was concern over economic reports. Though many economic indicators have been showing positive direction in recent months, reports this week — particularly from the ISM index and employment report — made investors question the tenacity of recovery.

The ISM index reading, which measures manufacturing activity in the U.S., was 52.6% in September, a reading that shows growth in the manufacturing sector. The number, however, was below the market’s expectations and was down from August’s 52.9% reading.

Unemployment also continues to be a major concern. The unemployment rate increased to 9.8% in September from 9.7% in August and September job losses of 263,000 was not only well above the 180,000 expected, but also higher than August’s 201,000 jobs lost. Many experts have also highlighted the fact that other employment-related numbers, including work force participation and unemployment persistence, are stuck at elevated levels.

Looking ahead

The beginning of the week will be quiet with fertilizer producer Mosaic and restaurant company Yum! Brands providing the only major releases, but on Wednesday Alcoa’s earnings release will mark the official beginning to the third quarter earnings season. Costco and Monsanto will also report on Wednesday, while Marriott and PepsiCo will chime in on Thursday, and Infosys will present its numbers on Friday.

The following week will still be only moderate in terms of earnings presentations, but in the weeks to come we will begin to be inundated by reporting companies. The first few weeks of the season will prove the most important for the broad markets, as investors will use the first volley of reports to form conclusions on the current state of the business world.

The economic calendar will be somewhat lighter next week after the wave of reports this past week. Monday’s ISM services report will be notable, as will wholesale inventories later in the week. And particularly in light of last week’s employment numbers, the weekly initial unemployment claims release will be closely watched.

Investors have been warily watching the market as it rose significantly from the lows earlier this year. The next two quarters will be where the proverbial rubber meets the road as businesses get a chance to prove whether the increased confidence that investors have shown was warranted. As a result, expect that the launch of third quarter earnings season next week could start some major waves for stocks.

This entry was posted on Saturday, October 3rd, 2009 at 4:25 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.