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In the headlines

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

• Former Fed Chief Paul Volcker made a case for stringent financial reforms
• Global semiconductor sales were up 29% year-over-year in December
• President Obama unveiled his $3.8 trillion budget proposal
• Bank of New York Mellon agreed to pay $2.3 billion for a unit of PNC Financial and PNC announced that it will repay TARP borrowings

• Moody’s issued a blanket warning for nearly 1,000 companies that will need to refinance debt in the coming years
• Google may be getting ready to escalate its battle with Microsoft
• Toyota’s recall may be just the beginning of its problems
• Ford joined Toyota in the penalty box by recalling 17,600 vehicles
• Moody’s warned on the U.S.’s debt rating
• U.S. auto sales increased in January
• UPS beat estimates and reported significantly higher profits
• Fury over AIG bonuses was renewed
• Monster Worldwide acquired HotJobs for $225 million
• Corporate bankruptcies climbed in January
• Bank of America executives were sued for securities fraud by the New York’s attorney general
• Goldman Sachs paid CEO Lloyd Blankfein significantly less than had been expected
• The U.S. unemployment rate fell to 9.7%

Commentary

Continuing January’s momentum, the market slumped again this week. Though three out of the five trading days ended in positive territory, a heady 3.1% loss on Thursday helped seal the S&P 500′s 0.7% loss for the week. The index is now down 4.4% year-to-date.

Early in the week there was much ado about the financial reforms and the so-called “Volcker Rule.” Specifically, on the table were the recommendations of former Federal Reserve Chairman Paul Volcker, recommendations that included splitting off proprietary trading businesses from the major banking institutions.

By most accounts, the testimony of Volcker in front of the Senate banking committee did not seem to get the support that would be needed to bring the rule into law. If the Volcker Rule does fade out, it is still unclear whether new banking regulations would really change the picture very much for the institutions concerned. For investors in banks and financials, this could be particularly good news.

More important to the markets, though, were the employment numbers released during the week. The reports culminated with the unemployment rate announcement on Friday, which came in at a seemingly optimistic 9.7%, down from 10% in the prior month.

The data, however, are not quite so clear. Non-farm payrolls actually declined by 20,000 during the month and the number of discouraged workers (the people that have stopped actively seeking employment) climbed. Seasonal adjustments played a big part in bringing down the overall unemployment level — the unadjusted unemployment rate rose from 9.7% in December to 10.6% in January. While the adjustment is reasonable considering typical seasonal patterns of employment, it can reduce the clarity of data.

Adding to that pessimism, and helping to drive the big loss on Thursday, was an increase in the number of new jobless claims. For the week, 480,000 workers applied for jobless benefits, up from 472,000 in the prior week and above the 455,000 expectation.

However, there is still room for optimism in all of this. While the continued high level of initial jobless claims is worrisome, the numbers remain well below what we saw during the worst of the recession. So at the very least we may be holding steady at a “less bad” level. A similar story could be told with the unemployment numbers. The raw data may be reason for pause, but the seasonally adjusted data is certainly encouraging. And though payrolls did fall in January, the loss still fits within a trend that could bring us to job growth in the coming months.

Earnings season continued during the week, but it might as well have been a footnote to the market action. Little notice was given to most of the major earnings reports and it appears that the market may already be looking past this earnings season.

Looking ahead

The economic calendar will be significantly lighter next week. In the early part of the week we’ll see wholesale inventories, the trade balance, and the treasury budget. In the back half of the week we’ll get initial unemployment claims, retail sales, and the University of Michigan consumer sentiment report.  After the question marks raised by the unemployment rate this past week, the initial unemployment claims will be in the spotlight next week.

Joining jobless claims in the spotlight next week will be retail sales and the University of Michigan sentiment report. Currently the market expects overall retail sales to post a 0.4% increase in January after a 0.2% decrease in December. The consumer sentiment report — which is an initial read on February’s levels — is expected to tick up to 74.8 from 74.4.

Earnings will continue in a big way through next week. However, it seems unlikely at this point that they will have much impact on the market. Thus far, earnings reports have been extremely positive, with nearly three quarters of profit reports exceeding analysts’ expectations. This, however, has not seemed to have any impact on the recent dour mood among investors.

With that said, the most important thing to follow next week will be broad investor sentiment. If sentiment hasn’t turned outright sour, excitement has at least cooled off significantly. The pressing question now is whether this means the market is taking a break before heading up further, leveling off to drift for a while, or preparing to make some sort of downside correction.

This entry was posted on Sunday, February 7th, 2010 at 12:38 am 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.