A Week in the Rearview – week ending 10/16/09
In the headlines
A look at some of the market movers over the past week:
- Private equity giant Blackstone may be preparing to exit up to 13 of its portfolio companies
- Central banks have increasingly shifted their reserves into currencies other than the dollar
- Economists boosted their view of third quarter growth
- Legendary dealmaker Bruce Wasserstein died at age 61
- AIG agreed to sell its Taiwan insurance business for $2.2 billion
- Discussions between GE and Comcast over a potential NBC joint venture continued
- The U.K. may start selling off government agencies to help reduce its debt
- A positive earnings report from Intel helped boost the tech sector
- Bloomberg agreed to buy BusinessWeek from McGraw-Hill
- Federal Reserve minutes showed disagreement among some Fed officials on how to proceed with its economic policies
- Calpers, the U.S.’s largest public pension fund, has launched an investigation into “pay for play” schemes
- Google had some positive comments about the economy when it announced third quarter results
- Bank of America CEO Ken Lewis agreed to work for free for 2009
- Initial jobless claims fell more than expected
- California’s San Joaquin Bank became the 99th bank closure this year
Commentary
Following up on a particularly strong week last week, the S&P 500 index continued to climb this week, adding 1.5%. A hefty 1.8% gain on Wednesday helped offset declines on Tuesday and Friday. The index is now up 61% from the March low, and has gained 20.4% year-to-date.
It was a relatively heavy week for economic reports and most of the reports came in to the upside. Retail sales at the beginning of the week posted a 1.5% decline, ahead of the 2.1% decline that was anticipated. Initial unemployment claims were six thousand less than expectations, while CPI came in on target with expectations. A pair of manufacturing reports also fell in positive territory. The consumer sentiment report that finished out the week was one of the few indicators that came in below what the market was looking for.
Earnings, however, were the clear focus for the week, and were a positive for the market on the whole. Early in the week, Intel gave a spark for the tech sector and the market as a whole when it posted better-than-expected earnings and gave a very optimistic outlook for the fourth quarter. Johnson & Johnson also reported results above analysts’ expectations, but some weakness on the top line led investors to sell off shares of the healthcare giant.
JPMorgan was the first of a cadre major financial services firms to report during the week and its hefty earnings beat cheered the market on Wednesday. Citigroup, Goldman Sachs, and Bank of America followed JPMorgan, and while Citigroup and Goldman Sachs managed to post seemingly positive results, the reports from the trio injected some caution into the market as investors questioned the underlying health of the banking sector.
Other major reports during the week included Google, IBM, and General Electric. IBM’s better-than-expected earnings per share weren’t enough to cheer investors, who seemed disappointed with some sales weakness in a couple of the tech giant’s divisions. General Electric was a similar story, with headline earnings beating the analysts’ hurdle, but concerns over sales and the health of the company’s finance segment dragging shares down. Like IBM and GE, Google posted better-than-expected results, but strong sales growth and renewed optimism in the online advertising market helped lift shares.
In all, though earnings season is still in the early innings, the market’s reaction suggests that investors are looking for more than just upside earnings surprises. The 60% gain that the S&P has posted since the market bottomed in March may be starting to feed this cautious attitude among investors.
Looking ahead
Expect more of the same ahead from the market next week. The Federal Reserve’s beige book report will be the cornerstone of the economic reporting calendar for the week. Building permits, housing starts, the producer price index, existing home sales, and, of course, initial unemployment claims could also grab some investor eyeballs.
Earnings will once again be the showpiece for the market next week. The schedule will kick off strong on Monday with Apple, BB&T, Boston Scientific, and Texas Instruments all reporting. Tuesday will feature Bank of New York Mellon, Blackrock, Brinker, Caterpillar, Coach, Comerica, Pfizer, Seagate, State Street, Stryker, Coca-Cola, United Technologies, UnitedHealth, and Yahoo.
Wednesday will follow with Amgen, AMR, eBay, Freeport-McMoRan, St. Jude Medical, Boeing, U.S. Bancorp, VMWare, and Wells Fargo. Thursday will perhaps be the heaviest day of the week with 3M, Amazon.com, American Express, AT&T, Capital One, Chipotle, Credit Suisse, Delta, EMC, Kimberly-Clark, Lab Corp, Legg Mason, McDonald’s, Merck, Netflix, Philip Morris International, PNC Financial, Potash Corp, Raytheon, SunTrust, Dow Chemical, Hershey, New York Times, Travelers, Union Pacific, UPS, US Airways, Wyeth, Xerox, and Zimmer all reporting. And Friday will close out the week with Honeywell, Ingersoll-Rand, Microsoft, Schlumberger, and Whirlpool.
Consumers, business, and banking are three of the key areas that investors are watching as a barometer of the broader economy. So companies like Apple, Wells Fargo, Caterpillar, and EMC, which will likely provide signs of how these three areas are faring, will be the most closely watched reports.
