A Week in the Rearview – week ending 2/19/10
In the headlines
A look at some of the market movers over the past week:
- Greece and its debt crisis remained in the spotlight
- A group of telecom operators teamed up to battle Apple’s apps store
- U.K. inflation was surprisingly high in January
- Foreclosures remain a difficult problem for the housing market
- Simon Property Group is battling to take over bankrupt General Growth Properties
- Toyota is continuing to try and stem the fallout from its recent recalls
- In December Japan once again became the top holder of U.S. Treasuries
- Apple and Research in Motion are being investigated for patent infringement
- Standard & Poor’s cut its rating on Blockbuster to CCC
- Walgreen agreed to acquire Duane Reade
- The Federal Reserve released the minutes from its most recent meeting
- The International Monetary Fund will soon begin sales of nearly 200 million metric tons of gold
- The Federal Reserve raised its rate on direct loans to banks
- Google was approved to begin buying and selling bulk power
- Senate Banking Committee Chairman Christopher Dodd plans to introduce a new finance reform bill next week
- Consumer prices rose less than expected in January
Commentary
The holiday-shortened week was a good one for investors, as the S&P 500 index climbed 3.1% by week’s end. The week started with a 1.8% jump on Monday and was followed by three more up days. The S&P has now pared its year-to-date loss to 0.5%.
The government and Federal Reserve held center court over the past week. Christopher Dodd, the Chairman of the Senate Banking Committee, is expected to release a plan for financial overhaul next week. Dodd’s plan is expected to include a council of regulators to monitor economic risks as well as a new banking regulator. If Dodd’s bill is passed, the House and the Senate will have to reconcile differences between it and a bill already passed in the House.
The Federal Reserve released the minutes from its most recent rate-setting meeting and its outlook continues to improve. The Fed noted improvement in overall business conditions and suggested that consumer spending — with the exception of December — appears to be on the mend as well. While board members noted that the job market has shown some improvement, they also pointed out that labor market participation continues to decline. The housing market, meanwhile, still seems to be seen as the thorn in the economic recovery.
The Fed made even bigger news on Thursday, though, when the central bank raised the discount rate that it charges banks for direct loans from 0.5% to 0.75%. The Fed quickly reassured markets that the move was not an indication that it will start tightening credit more broadly, but rather a reaction to improvements in the health of the banking system. A lower-than-expected increase in consumer prices in January suggested that the Fed still has more time to keep credit loose without risking serious inflation.
Looking ahead
The week after next will contain many of the February month-end economic reports, but we shouldn’t overlook the reports of the coming week. Housing continues to be a lagging part of the economic recovery and there will be a handful of reports on the market next week. At the beginning of the week, the Case-Shiller housing price index is expected to show that housing prices fell between 3.1% and 4.5% in December. Estimates for sales of both new and existing homes in January vary widely and reports could show continued declines or modest gains.
Notable reports for the week also include consumer confidence, initial unemployment claims, a revised reading of fourth quarter GDP, and a final February measure of the University of Michigan’s sentiment report.
Earnings will continue next week, but it seems unlikely that the releases will have an impact beyond the reporting companies.
Last week’s week-end news will likely set the stage for the market’s focus next week. The Fed’s move to raise discount rates should increase chatter around the central bank’s plans to tighten credit more broadly. To date, the Fed has outlined some of the methods it plans to use to tighten credit, but it has been reluctant to put any sort of timeline on its plans. The expected introduction of a financial overhaul plan from the Senate Banking Committee should also be a hot topic next week.
