A Week in the Rearview – week ending 12/11/09
In the headlines
A look at some of the market movers over the past week:
- Compensation continues to be a battleground at AIG
- Mining giants BHP Billiton and Rio Tinto signed a joint venture agreement for iron ore in Western Australia
- Estimates of losses from the U.S. banking bailout were cut
- Moody’s suggested that the triple-A ratings for the U.S. and U.K. could be at risk
- Fedex upped its fiscal second quarter profit forecast
- Consumer credit fell much less than expected in October
- Chinese officials are expecting a “V-shaped” recovery in the country’s economy
- After just over a month in bankruptcy, CIT Group returned to the land of the living
- Citigroup is working hard to make an exit from the government’s TARP program
- The U.S. government is planning to use untapped TARP money to provide additional job stimulus
- By year end, 2009 will likely prove to have been a much less costly year for the housing market
- A UCLA report suggests slow growth and continued high unemployment ahead for U.S. economy
- Goldman Sachs announced that top executives will receive stock-only bonuses in 2009
- A report suggests that the government’s mortgage modification program may be falling short
- AOL made its trading debut after breaking off from former parent Time Warner
- Obama’s “pay czar” continues to get tough on compensation for government aid recipients
Commentary
The S&P 500 index staggered along during the week, finishing flattish after a solid gain in the previous week. Declines during the first two trading days gave way to modest gains through the back half of the week. The index is now up 23% year-to-date and 64% from March’s nadir.
As the cautious movements of the markets suggest, it was a rather slow week on Wall Street. The newswires were largely dominated by Citigroup’s attempts to exit the government’s TARP program and back-and-forth on Capital Hill over how to move the U.S.’s economy forward.
In economic news, initial jobless claims came in above the market’s expectations, though continuing claims were well below the anticipated 5.45 million. There was a healthy dose of optimism on the consumer side, as consumer credit fell much less than expected, retail sales handily beat expectations, and consumer sentiment improved more than anticipated.
Looking ahead
If you’re looking for excitement from the markets, you’re likely to be disappointed for the next few weeks. With the holiday season rapidly approaching, investors are likely to tune out somewhat and be a bit more cautious overall. As the end of the year approaches we could also see some tax-loss selling start to take place.
On the earnings front, the overall pace of releases will be anemic next week, but there will be a handful of notable reports. On Tuesday, Adobe Systems and Best Buy will disclose earnings, and on Thursday we’ll hear from FedEx, General Mills, and Nike. With the market resting a lot of hope on consumers, Best Buy will likely be the most notable release of the week. Ahead of the report, analysts are expecting that the electronics retailer will report earnings per share of $0.43, up 23% from last year’s profit.
There will be a few notable economic events next week including the consumer price index, a rate decision from the Federal Reserve, and a report on leading economic indicators. Core CPI is expected to creep forward by 0.1%, a potential sign that the Fed’s loose monetary policy is not yet causing inflationary pressures.
The Fed’s rate decision, meanwhile, is unlikely to meet with the hoopla that has surrounded this event in recent years. Investors are convinced that the Fed will leave its rate target set between 0% and 0.25%. Additionally, the Federal Reserve, and its Chairman Ben Bernanke, has been very communicative about its view of the U.S. economy, so the commentary accompanying the rate decision is unlikely to cause too many waves either.
Leading economic indicators in November are expected to show an increase of 0.7% after a 0.3% advance in October. While it’s unlikely that this will move the markets very much, a reading that matches or exceeds expectations would be yet another sign that the U.S. economy is continuing to stabilize.
