Smart401k Blog

In the headlines

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

• European leaders promised to not let Greece fall under the weight of its credit crisis
• The Federal Reserve began outlining its exit strategy for its record credit expansion
• Former Merrill Lynch chief John Thain is set to take over at CIT
• SAP shook up its top level management

• Treasury Secretary Timothy Geithner defended the U.S.’s triple-A bond rating
• Troubles at small businesses could hamper the recovery
• UBS announced its first profit in more than a year
• Traders and hedge funds have set up a massive short position against the Euro
• Boeing completed a test flight with the largest plane the company has ever built
• Standard & Poor’s cut its outlook on both Bank of America and Citigroup
• Warren Buffett and Hank Paulson praised the government’s financial intervention
• One in five U.S. homeowners are now “underwater”
• Google launched a new service that will compete with social networking sites like Facebook, and announced plans to build high speed data networks
• CME Group purchased a 90% stake in the Dow Jones indexes business
• Euro-zone growth came in lower than expected
• Motorola announced plans to split in two
• Reports suggest that former regulators working for Toyota helped halt safety probes
• Mid-Atlantic states were clobbered by nasty winter weather
• Senate Democrats unveiled an $85 billion stimulus bill
• Berkshire Hathaway officially joined the S&P 500
• China unexpectedly hiked its reserve ratio
• Jobless claims fell by 43,000 from the prior week
• Retail sales in January grew more than expected

Commentary

Three out of the five trading days this week ended with the market lower, but at week’s end the S&P 500 had notched a 0.9% gain, reversing four straight weeks of losses. However, the gains weren’t quite enough to pull the index back into the black for the first couple months of 2010. Year-to-date the S&P 500 is down 3.6%.

As the list above suggests, it was a busy week for the financial markets and there was plenty of news to digest.

The Federal Reserve took front stage early in the week as Fed Chairman Ben Bernanke started getting specific on how the Fed would go about unwinding the massive monetary stimulus it’s used to jump-start the economy. Bernanke said that likely first steps in the process would be to raise the interest rate on banking reserves held at the Fed and use reverse repurchase agreements, which temporarily pull money out of the banking system. Bernanke also said that the Fed will likely begin testing these tools on a limited basis before it begins using them on a broader scale.

While Bernanke offered a bit more detail on how the Fed would go about tightening monetary policy, the when of the plan is still unclear. Thus far, the Fed has maintained that it would keep its accommodative policies for an “extended period.”

Like Dubai not all that long ago, Greece has jumped onto the financial world’s center stage as it struggles under a heavy debt load. Though the country represents a very small portion of the Euro-zone’s overall GDP, many are looking at the country’s struggle and the reaction from European leaders as a test of how well Euro-zone members will work together in this sort of crisis scenario. European leaders have so far promised that they wouldn’t let Greece fail, but details have been very sparse.

China also made some waves during the week as it raised banking reserve requirements for the second time in a month. The action is hoped to cool down lending in China and head off inflation and asset price bubbles. Though a healthy China that isn’t overheating is preferable for the rest of the world in the long term, there was a negative reaction to the actions as investors worried about the potential that China is already in a bubble and that slower growth in the country would impact other major world economies in the near term.

Coming back to the U.S., we can round out the week’s with some good news on the economic front. After some head-scratching employment numbers released last week, the drop in initial unemployment claims was a very clear positive indicator this week. Though this is a weekly reading and tends to bounce around, the drop let investors breathe a sigh of relief after the measure had shown unexpected increases in recent weeks.

Retail sales also provided a positive boost. January retail sales grew 0.5%, above the expected 0.3% increase. This has been a key focus point for many market analysts because of the huge portion of the economy that consumers account for.

Looking ahead

It will be a four-day holiday-shortened week next week as U.S. markets stay dark on Monday for the Presidents’ Day holiday.

On Wednesday the economic calendar will heat up with reports on housing starts, building permits, and capacity utilization. Also on Wednesday, the Fed will release the minutes from its most recent rate-setting meeting. Thursday will follow with initial unemployment claims, the producer price index, and economic leading indicators. Wrapping up the week we’ll see numbers on the consumer price index on Friday.

The most important economic releases are likely to be the Fed’s minutes, initial unemployment claims, and the consumer price index.

Earnings will continue to go strong next week with, of course, the exception of Monday’s holiday. Individual earnings reports are very unlikely to have an impact on the broader market though, as investors clearly seem to be looking beyond the current reports.

The market seems to have arrested the declines that started in mid-January. The question of whether the momentum reversal can continue next week will likely lie with investor sentiment along with the fate of Greece, news out of the Fed and the government, and evolving views on China’s current economic situation.

This entry was posted on Saturday, February 13th, 2010 at 8:54 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.