A Week in the Rearview – week ending 11/06/09
In the headlines
A look at some of the market movers over the past week:
- CIT Group officially filed for bankruptcy
- Goldman Sachs is trying to snatch up some of Fannie Mae’s tax credits
- Comcast and GE are getting near a deal that would put NBC in Comcast’s hands
- A Wall Street Journal reports showed that U.S. companies are betting big on cash
- Tool and hardware maker Stanley Works agreed to acquire Black & Decker for $3.5 billion
- The European Commission believes that recovery in the EU will be slow
- Australia’s central bank raised its rates for the second time in two months
- Manufacturing and home sales provided some pleasant economic surprises
- GM’s decision to hang onto its Opel unit was not popular on the global stage
- In the biggest bet of his career, Warren Buffett’s Berkshire Hathaway took over Burlington Northern Santa Fe in a $44 billion deal
- China backed a Disney bid to build a $4 billion theme park in Shanghai
- As expected, the Federal Reserve left the Federal Funds Rate unchanged
- The Congressional oversight panel for the financial bailout revealed who has benefitted most from the government’s programs
- Fannie Mae continues to gobble up government funds
- Bank failures reached 119 for the year
- The unemployment rate unexpectedly leapt to 10.2%
Commentary
The market started off November on a good note, reversing a string of down weeks. The S&P 500 index ended the week with a 3.2% gain thanks to a five straight of up-days and a big 1.9% uptick on Thursday. The week’s climb puts year-to-date gains for the S&P at 18.4%.
Once again the earnings calendar took a backseat to economic news. Manufacturing data was the star of the week and was a driver of much of the market’s optimism. On Monday construction spending, the Institute for Supply Management’s manufacturing index, and pending home sales all came in notably above expectations. Construction spending was forecast to decline by 0.2% but surprised the market with a 0.8% gain. The ISM index, meanwhile, came in at 55.7, well above the expectation of 53, signaling that manufacturing is continuing to expand.
The good news on the manufacturing front was able to overshadow some more disappointing news on the employment front. The midweek ADP employment report showed a 203,000 drop in payrolls, below the 227,000 level in September, but above the 198,000 expectation. Later in the week the government’s employment numbers were surprisingly disappointing and pushed the nation’s unemployment rate up to 10.2% from 9.8%. The forecast was for a 9.9% unemployment rate.
Providing some offset to the dour employment numbers was a notable uptick in worker productivity and a below-forecast number of initial unemployment claims.
The other major economic event for the week was the rate decision by the Federal Reserve. While the decision to keep the core Federal Funds Rate at a range of 0% to 0.25% was fully expected, investors honed in on the commentary that the Fed provided with the decision. In broad strokes, the Fed painted a picture of a sluggish economy, but one that appears to be heading in the direction of recovery.
The Fed’s commentary specifically highlighted the fact that conditions in the financial markets have remained stable while activity in the housing market picked up. The committee also noted that consumer spending has continued to lag as the employment picture remains dim, but pointed out that the pace of layoffs continues to slow.
Looking ahead
Earnings reports will continue at a healthy pace for the next few weeks, though we’ll probably continue to see them play a background role.
Reports to look out for on Monday and Tuesday are Electronic Arts, Fluor, MBIA, and Tyco. Applied Materials, ING Group, Macy’s, and Progressive report on Wednesday. AmBev, Anheuser-Busch InBev, Kohls, Nordstrom, Wal-Mart, and Disney report on Thursday. On Friday, the week closes with reports from Abercrombie & Fitch, Agilent Technologies, and JCPenney.
After a frenzied week for economic reports last week, the economic calendar will be substantially quieter next week. Initial unemployment claims on Thursday will be noted, and the University of Michigan’s report on consumer sentiment at the end of the week will also be important.
With little on the schedule to direct the market expect that next week’s market will largely move on investor sentiment. As such, we will likely continue to hear discussion about the veracity of the economic recovery and whether the market’s rally can hold up.
In the headlines
A look at some of the market movers over the past week:
- CIT Group officially filed for bankruptcy
- Goldman Sachs is trying to snatch up some of Fannie Mae’s tax credits
- Comcast and GE are getting near a deal that would put NBC in Comcast’s hands
- A Wall Street Journal reports showed that U.S. companies are betting big on cash
- Tool and hardware maker Stanley Works agreed to acquire Black & Decker for $3.5 billion
- The European Commission believes that recovery in the EU will be slow
- Australia’s central bank raised its rates for the second time in two months
- Manufacturing and home sales provided some pleasant economic surprises
- GM’s decision to hang onto its Opel unit was not popular on the global stage
- In the biggest bet of his career, Warren Buffett’s Berkshire Hathaway took over Burlington Northern Santa Fe in a $44 billion deal
- China backed a Disney bid to build a $4 billion theme park in Shanghai
- As expected, the Federal Reserve left the Federal Funds Rate unchanged
- The Congressional oversight panel for the financial bailout revealed who has benefitted most from the government’s programs
- Fannie Mae continues to gobble up government funds
- Bank failures reached 119 for the year
- The unemployment rate unexpectedly leapt to 10.2%
Commentary
The market started off November on a good note, reversing a string of down weeks. The S&P 500 index ended the week with a 3.2% gain thanks to a five straight of up-days and a big 1.9% uptick on Thursday. The week’s climb puts year-to-date gains for the S&P at 18.4%.
Once again the earnings calendar took a backseat to economic news. Manufacturing data was the star of the week and was a driver of much of the market’s optimism. On Monday construction spending, the Institute for Supply Management’s manufacturing index, and pending home sales all came in notably above expectations. Construction spending was forecast to decline by 0.2% but surprised the market with a 0.8% gain. The ISM index, meanwhile, came in at 55.7, well above the expectation of 53, and signaling that manufacturing is continuing to expand.
The good news on the manufacturing front was able to overshadow some more disappointing news on the employment front. The midweek ADP employment report showed a 203,000 drop in payrolls, below the 227,000 level in September, but above the 198,000 expectation. Later in the week the government’s employment numbers were surprisingly disappointing and pushed the nation’s unemployment rate up to 10.2% from 9.8%. The forecast was for a 9.9% unemployment rate.
Providing some offset to the dour employment numbers was a notable uptick in worker productivity and a below-forecast number of initial unemployment claims.
The other major economic event for the week was the rate decision by the Federal Reserve. While the decision to keep the core Federal Funds Rate at a range of 0% to 0.25% was fully expected, investors honed in on the commentary that the Fed provided with the decision. In broad strokes, the Fed painted a picture of a sluggish economy, but one that appears to be heading in the direction of recovery.
The Fed’s commentary specifically highlighted the fact that conditions in the financial markets have remained stable while activity in the housing market picked up. The committee also noted that consumer spending has continued to lag as the employment picture remains dim, but pointed out that the pace of layoffs continues to slow.
Looking ahead
Earnings reports will continue at a healthy pace for the next few weeks, though we’ll probably continue to see them play a background role.
Reports to look out for on Monday and Tuesday are Electronic Arts, Fluor, MBIA, and Tyco. Applied Materials, ING Group, Macy’s, and Progressive report on Wednesday. AmBev, Anheuser-Busch InBev, Kohls, Nordstrom, Wal-Mart, and Disney report on Thursday. On Friday, the week closes with reports from Abercrombie & Fitch, Agilent Technologies, and JCPenney.
After a frenzied week for economic reports last week, the economic calendar will be substantially quieter next week. Initial unemployment claims on Thursday will be noted, and the University of Michigan’s report on consumer sentiment at the end of the week will also be important.
With little on the schedule to direct the market expect that next week’s market will largely move on investor sentiment. As such, we will likely continue to hear discussion about the veracity of the economic recovery and whether the market’s rally can hold up.
