Smart401k Blog

In the headlines

A look at some of the market movers over the past week:

• Hershey dropped out of the running as Cadbury accepted a buyout offer from Kraft
• Tyco acquired Brinks Home Security for $2 billion
• Japan Airlines became one of Japan’s largest bankruptcies
• The victory of Scott Brown in Massachusetts may put healthcare reform at risk

• IBM posted encouraging fourth quarter earnings
• China took further steps to cool growth and limit inflation dangers
• The World Bank provided a cautiously optimistic outlook on the world economy
• Metro-Goldwyn-Mayer may be preparing for a prepackaged bankruptcy and sale
• President Obama announced potential changes to the financial system that would limit size and risk-taking
• The government is considering whether to put Fannie Mae and Freddie Mac on its books
• Google posted better-than-expected quarterly results
• GE may be showing signs of stabilizing

Commentary

Three out of four trading days ended in the red for the S&P 500 –including a hefty 2.2% drop on Friday — and the index finished the week down 3.9%. After starting off the year strong, the S&P is now down 2.1% year-to-date.

While there was a hefty earnings calendar this week, Washington stole much of the thunder from reporting companies. The election of Republican Scott Brown in Massachusetts was seen by many as a signal for President Obama to put the brakes on spending in general. Though that may overstate the true significance of the election — and both sides are still debating that — the election does call in to question whether Congress will be able to settle on a healthcare reform bill.

Additionally, President Obama lashed out at the nation’s big banks again, this time proposing a number of new regulations that could force the banks into some tough decisions. Though details of the regulations are still vague, it’s expected that they would restrict deposit-taking banks from engaging in proprietary trading, put limits on their size, and force them to get rid of their hedge fund and private equity divisions.

In the midst of all of this, though, there were plenty of earnings reports hitting the wires. Citigroup, Bank of America, Goldman Sachs, and Morgan Stanley were among the major financials to report during the week, and for the most part they followed the model of JPMorgan. For Citi and B of A, both commercial and consumer lending continued to be sore spots. All four reports showed at least some slowdown in trading profits versus a year ago.

IBM’s results beat analyst’s expectations and pegged 2010 bottom line growth at 10%. American Express likewise beat expectations, and its management team expressed confidence in a continued recovery in the overall economy. In fact, it was a similar story among many of the reporting companies, including Google, Freeport-McMoRan, Unitedhealth, General Electric, and McDonald’s.

Looking ahead

We should expect to hear plenty more from Washington in the coming week. With the Massachusetts upset still fresh, speculation will continue over what the Brown victory means for both healthcare reform and the bigger picture. Meanwhile, with details about the President’s banking bombshell still sparse, investors and financial executives will be looking for more clarity from D.C.

It will be a much more interesting week on the economic front. Housing will take center stage early in the week with reports on existing home sales, new home sales, and the Case-Shiller home price index. Initial unemployment claims will be a notable report as they’ve been climbing more than expected lately and it’s anticipated that they’ll fall by as much as 32,000 next week.

Midweek, the Federal Reserve will meet to decide on the Federal Funds rate. As has been the case for a while now, the actual rate decision will likely be of little interest. Though there has been increased concern over the Fed’s eventual “exit plan” from its exceptionally low rates, the market still anticipates that the rate will stay the same at least through April. However, the commentary that the Fed provides with its decision will likely be closely watched.

Towards the end of the week we will see an advanced read on fourth quarter GDP and the University of Michigan’s updated consumer confidence index for January.

Earnings reports will be absolutely frothy next week. Kicking off the week on Monday and Tuesday, we’ll hear from Amgen, Apple, Eaton, Halliburton, Texas Instruments, VMware, Delta Air Lines, DuPont, EMC, Johnson & Johnson, Novartis, Nucor, Siemens, The Travelers Companies, United States Steel, Verizon, and Yahoo. Wednesday will bring BlackRock, Caterpillar, ConocoPhillips, E*Trade, General Dynamics, Norfolk Southern, Qualcomm, SAP, St. Jude Medical, Symantec, Boeing, UAL, United Technologies, Valero Energy, and WellPoint.

On Thursday the big name reports will be 3M, Altria, Amazon.com, AT&T, Bristol-Myers Squibb, Colgate-Palmolive, Danaher, Eli Lilly, Ford, JetBlue, Lockheed Martin, Microsoft, Motorola, Procter & Gamble, Raytheon, T. Rowe Price, Tyco, and US Airways. And finally Friday will close the week with Chevron, Fortune Brands, Honeywell, and Mattel.

If earnings reports next week follow in the footsteps of the reports from this past week, we should be in for more upside surprises. However, the more important issue for next week is how investors will react to earnings. Last week, whether distracted by the mixed picture at the big banks or the hoopla in Washington, investors largely shrugged off better-than-expected results from a lot of major companies.

This entry was posted on Saturday, January 23rd, 2010 at 1:01 pm and is filed under SmartUpdate Market News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.