A Week in the Rearview – week ending 1/15/09
In the headlines
A look at some of the market movers over the past week:
- Bankruptcy looks likely for Japan Airlines
- More bad news could be ahead in Dubai as Barclays won the first foreclosure case in the country
- Populist outrage is at a boil again as Wall Street banks get ready to dole out massive bonuses
- Continuing its efforts to stay on top of inflation, China raised banks’ reserve ratio
- Thanks to its economy-boosting efforts, the Federal Reserve posted a huge 2009 profit
- Aluminum producer Alcoa kicked off earnings season with a $277 million loss
- Google threatened to pull out of China after a highly sophisticated cyber attack
- The executives at major Wall Street firms faced tough questioning from a Congressional panel
- Foreclosures hit a record in 2009
- In its Beige Book report, the Federal Reserve noted continued economic improvement
- President Obama proposed a new fee on U.S. banks
- Chip-maker Intel reported strong earnings
- Retail sales posted a surprising 0.3% decline
- For the second time in a month, Johnson & Johnson issued a recall on Tylenol
- Earnings were strong at JPMorgan, though they painted a bleak picture of consumer lending
Commentary
After a strong start to the year, the markets cooled off a bit this week. The S&P 500 finished the week with 0.8% decline, thanks to moderate losses on Tuesday and Friday. The index is now up 1.9% over the first couple of weeks of 2010.
The major U.S. banks spent plenty of time in the headlines this week. Looking to collect the money that the government will ultimately lose on its TARP program, President Obama proposed a fee on major U.S. banks. While full details of the fee haven’t been released yet, it would levy a 0.15% tax on the balance sheets of companies with assets over $50 billion.
The executives at major banks such as JPMorgan and Goldman Sachs were also hauled in front of Congress in a continued effort to dig up the causes for the financial crisis. While this hearing was the stuff of good headlines and members of Congress had a chance to throw some harsh words in the bankers’ direction, little of substance was uncovered.
On the economic front, December retail sales jolted the market by coming in 0.3% below November’s level. Expectations had been for sales to increase 0.5% from the prior month. A variety of explanations were floated for the shortfall, including the winter storms during the month which may have kept shoppers away from stores. Despite the decline, many economists remain optimistic about the overall fourth quarter increase in consumer activity.
Earnings also kicked off during the week and it was a mixed bag. Alcoa was the first major report of the season, and the aluminum producer reported a GAAP loss that continued to demonstrate its struggle to regain profitability after the recession. On a non-GAAP basis, the company reported $0.01 in earnings per share, below the expected $0.06.
Later in the week, reports came from Intel and JPMorgan. Intel showed increases across the board and its $0.40 in earnings per share blew out the expected $0.30. Many observers noted that the earnings from Intel could suggest that the tech industry as a whole is recovering.
JPMorgan likewise produced impressive results, topping analysts’ $0.52 per-share profit estimates by $0.30. While the earnings looked good on the surface, many experts highlighted the fact that much of the bottom line came from investment banking and trading activities, while the company’s consumer lending segments continued to struggle.
Both Intel and JPMorgan’s stocks declined after earnings, potentially sending a warning signal that investors may be getting more cautious despite strong earnings results.
Looking ahead
It will be a holiday-shortened week ahead, with the markets on break Monday for the Martin Luther King Jr. holiday.
The economic calendar for the week ahead will be relatively light, with housing starts and initial unemployment claims likely the most notable reports.
There won’t be a dearth of information for investors to take in though, as attention will continue to hone in on the steadily-growing list of companies reporting earnings. On Tuesday and Wednesday we’ll see reports from Citigroup, CSX Corp, IBM, TD Ameritrade, AMR Corp, Bank of America, Bank of New York Mellon, Coach, eBay, Morgan Stanley, Starbucks, U.S. Bancorp, and Wells Fargo.
Thursday will bring American Express, Capital One, Comerica, Continental Airlines, Freeport-McMoRan, Goldman Sachs, Google, IGT, KeyCorp, Legg Mason, PNC Financial, Southwest Airlines, UnitedHealth, and Xerox. BB&T, General Electric, Harley-Davidson, Kimberly-Clark, McDonald’s, Merck, Schlumberger, and SunTrust finish out the week on Friday.
Earnings season is still wide open in terms of how company earnings will shake out and, maybe more importantly, how investors will react to the reports. The latter could be worth keeping a close eye on next week, particularly considering the lackluster reaction to the earnings from Intel and JPMorgan this past week.
