A Week in the Rearview – week ending 1/08/10
In the headlines
A look at some of the market movers over the past week:
- Novartis set the wheels in motion to buy the rest of Alcon
- Warren Buffett made waves by speaking out against Kraft‘s battle to acquire Cadbury
- In the wake of the financial crisis the banking landscape in the U.K. continues to shift
- Credit Suisse became the target in a $24 billion lawsuit over its lending practices
- Personal bankruptcies rose substantially in 2009
- Google officially launched its Nexus One smartphone
- Auto lender GMAC is expected to post a massive fourth quarter loss
- Auto sales posted impressive gains in December
- Senate banking committee chairman Christopher Dodd announced that he will not seek re-election
- December retail sales posted a 2.9% increase from 2008
- The New York Federal Reserve came under fire for instructing AIG to remove specific language about swap settlements from a post-bailout press release
- According to Federal Reserve meeting minutes, some FOMC members think more aid will be needed
- China took steps to address potential inflation as its country emerges from the global slowdown
- December’s jobs report came in worse than expected and kept the unemployment rate at 10%
Commentary
How much can we infer about the coming year from the first week of trading? The more the better, as the S&P 500 started off the new year with five straight up days and an impressive 2.7% gain.
The week started out with a few very positive economic reports, including better-than-expected reports on the Institute of Supply Management’s main index and factory orders. A big drop in pending home sales took some air out of the market, but the mid-week employment report from ADP offered another boost as the reported 84,000 job cuts were better than some experts had anticipated.
The rest of the week was mainly preparation for the end-of-week jobs report, which was expected to show zero to 25,000 job losses in December. When the numbers came in though, the 85,000 drop in employment surprised many analysts. Not only was the number well above expectations, but it came on the heels of an adjustment to November’s jobs report which now shows that 4,000 jobs were added in that month.
While the unemployment rate held at 10%, that was due mainly to the fact that many more Americans took themselves out of the labor force by discontinuing their job hunt. The underemployment rate, which includes those who want to work but have either stopped looking or have taken on part-time work, rose to 17.3% in December, up from 17.2% in the prior month.
Some observers have been quick to report that the week in which the numbers were gathered — the week of December 7th — was a particularly cold one, which could have led to an unusual number of firings in outdoor industries such as construction. Whether or not this is the case, the worse-than-expected numbers have put even more attention on the importance of revitalizing the job market.
Also notable during the week was the release of minutes from the most recent Federal Reserve policy meeting. While much of the discussion centered on improvements in the economy, there was substantial talk about the troubles in the labor market and most of the members of the Fed seem to expect a slow employment recovery. The lackluster employment numbers for December will likely be a key point of discussion during the Fed’s next meeting.
In addition, the members of the Fed discussed the outlook for housing. While the consensus was that housing appears to be on firmer footing, there was concern over the eventual expiration of the government’s home buyer tax credit, as well as pressure from mounting foreclosures. Some members suggested that the Fed may have to step back from its planned reduction in monetary stimulus if housing starts to hit the skids again.
Looking ahead
Next week will bring a handful of notable economic reports to the market. By midweek we’ll have seen the Fed’s Beige Book report, and then in the back half of the week retail sales, the consumer price index, the University of Michigan’s consumer sentiment report, and initial unemployment claims will hit the wires.
But there’s only one word you really need to know for next week, and really the next few weeks to come: earnings.
On Monday, Alcoa provides the official kick-off to fourth quarter earnings season. Analysts expect that it will report a $0.06 profit per share after losing $0.28 per share last year. Overall, next week’s earnings calendar will be pretty quiet. Besides Alcoa, Linear Technology and Supervalu are the only reports that will be halfway notable.
However, much of the market chatter will begin to lock onto upcoming earnings reports from everyone from IBM (January 19th) to Caterpillar (January 26th) to UPS (February 2nd). And even though we have to wait a couple of weeks for many of the biggest earnings reports, many companies may begin coming forward with pre-reports to prepare investors for what’s to come.
