A Week in the Rearview – week ending 1/29/10
In the headlines
A look at some of the market movers over the past week:
- Google’s co-founders registered to sell roughly five million shares
- Wal-Mart is cutting 11,000 jobs in its Sam’s Club stores
- TARP watchdog Neil Barofsky new investigations into the government’s handling of the AIG bailout
- The U.K. economy squeaked its way out of recession
- Apple’s fourth quarter earnings sailed past analysts’ expectations
- General Motor’s Chairman decided to take over the company’s CEO spot
- Toyota ordered the halt of sales for multiple popular models in the U.S.
- Berkshire Hathaway was added to the S&P 500 index
- Yahoo swung to a profit and reported better-than-expected results
- Apple unveiled its new iPad computer
- President Obama delivered his first State of the Union address
- The Federal Reserve kept its key rate steady
- Foreclosures continue to plague many areas of the U.S.
- Federal Reserve Chairman Ben Bernanke was approved for a second term
- Regulators shut down five banks, bringing the 2010 total to 15
- U.S. GDP grew at a 5.7% rate in the fourth quarter
Commentary
Capping off a rough January for stocks, the S&P 500 dropped 1.6% during the week. Small gains on Monday and Wednesday weren’t enough to offset larger drops towards the end of the week. By the time trading closed on Friday, the S&P had secured a 3.7% loss for the month.
Political news during the week included the Federal Reserve’s decision to keep interest rates steady and the confirmation of Federal Reserve Chief Ben Bernanke. Though the Fed continued to maintain that it will keep interest rates low for an extended period of time, the central bank also continued to express optimism that economic activity in the U.S. is picking up. This will keep the spotlight on the Fed and Bernanke as they try to balance the need to further stimulate the economy with keeping a lid on inflationary pressures.
Meanwhile, earnings continued to pour in during the week and much of the news was positive. Among companies that posted encouraging earnings were Texas Instruments, Apple, Yahoo, EMC, Verizon, AT&T, Caterpillar, and Ford. In addition, many of these companies also gave optimistic outlooks on the coming quarter, and in some cases, the coming year as well.
But the positive earnings numbers weren’t enough to turn the tide of the market. As a result, the main story for the week was the apparent growing disquiet among investors. The economy has made significant headway since early last year when we were still embroiled in the worst of the financial crisis. However, the market has also recovered significantly — even with January’s decline, the S&P 500 is still up 59% from the lows of last March. Many investors now seem to be questioning whether the strength of the recovery is enough to warrant the stock market moving even higher.
Looking ahead
With January coming to a close this past week, there will be plenty of economic news for investors to look forward to next week. Early in the week we’ll see data on personal income and spending, the Institute of Supply Management’s index, pending home sales, and auto sales. Later in the week we’ll hear about worker productivity, factory orders, and, of course, employment.
Employment continues to be a key indicator of the veracity of the recovery for many investors, so it’s very likely that this will be the key data to focus on next week. On Wednesday, ADP will release its report on payrolls and expectations vary from a decline of 40,000 to 60,000 following a drop of 84,000 last month. On Friday, we’ll hear the government’s numbers on unemployment. Current expectations are that the unemployment rate could have ticked back up to 10.1% in January.
Earnings will also continue in full force next week. Highlighting Monday and Tuesday will be Humana, Sysco, Aflac, Archer Daniels Midland, BP, D.R. Horton, Marathon Oil, MetLife, News Corp, Dow Chemical, Hershey, and UPS. Wednesday will bring Cisco, Honda, Pfizer, Time Warner, Visa, and Yum! Brands. And Thursday and Friday will close out the week with Clorox, Deutsche Bank, GlaxoSmithKline, Hitachi, Kellogg, MasterCard, Moody’s, Northrop Grumman, Toyota, Unilever, and Aetna.
But as we watched the market decline despite positive earnings last week, the key story for next week is likely to once again be investors’ sentiment and whether economic data is convincing enough that buyers will come back into the market. In fact, with a good deal of earnings already reported at this point, the market may already be looking past earnings season and focusing more on forward-looking indicators.
