A Week in the Rearview – week ending 8/6/2010
In the headlines
A look at some of the market movers from the week:
- BlackBerry maker Research in Motion faced a service shutdown in Saudi Arabia
- Credit card companies may soon face tough competition from mobile carriers
- HSBC announced big profit gains
- Kinross Gold agreed to pay $7.1 billion to acquire the shares of Red Back Mining it didn’t already own
- GE and Intel announced a joint venture to collaborate further on home health care
- Banking firms began announcing moves to comply with the financial reform bill’s “Volcker Rule”
- Barnes & Noble said that it may sell itself
- Dollar Thrifty rejected a bid from Avis in favor of its agreed-to deal with Hertz
- Intel settled an antitrust case with the FTC
- BP sealed the blown-out well in the Gulf of Mexico
- The Senate gave the nod to a $26.1 billion aid bill aimed at paying for state healthcare and education costs
- Fannie Mae posted a smaller loss in the second quarter and asked the government for another $1.5 billion in aid
- Hewlett-Packard CEO Mark Hurd resigned abruptly amid a sexual harassment scandal
- Declines in derivative holdings led to a big drop in Berkshire Hathaway’s bottom line
- A weak jobs report disappointed investors on Friday
Commentary
The S&P 500 index finished the week in the black, but investors spent much of the week in a pensive stance. Monday’s 2.2% jump fueled the week’s 1.8% gain, but three of the four remaining trading days saw the index close in the red as investors fretted about the economy. The week’s gain did, however, vault the S&P’s year-to-date performance over breakeven to a 0.6% advance. The bump starts August on a good note after sharp gain in July.
There was a lot that happened in the past week, but in the big picture there wasn’t a whole lot that was important. With July closing out the prior week, this past week brought us the all-important employment numbers — and they did not please investors.
The early-week payroll report from ADP set a positive tone for the government’s closely-watched measure when additions solidly beat the market’s expectations. That optimism was diminished the following day when initial unemployment claims jumped above both the prior week and market estimates. Hopeful investors were further deflated when the government’s payroll numbers slid in under the expected levels.
Total payroll change for July was a loss of 131,000 positions, though the loss was driven by 143,000 temporary census workers were laid off. Private employment increased by 71,000 jobs, below 83,000 that were anticipated. Employment gains in manufacturing, health care, and transportation and warehousing provided the bulk of new jobs during the month while professional and business services, finance, and construction all dragged the month’s total down.
In its report, the Bureau of Labor Statistics noted that private-sector employment has increased by 630,000 jobs so far this year, though the lion’s share of those gains came in March and April.
As important as the employment situation is to the recovery, the perceived importance of that report may have caused investors to overlook some of the other reports during the past week. Though labor numbers disappointed, many of the other month-end numbers announced last week bested expectations. Hourly earnings posted a better-than-expected gain, while construction spending and the ISM services index posted increases instead of the expected decreases. The ISM index, pending home sales, and consumer credit all posted narrower-than-expected declines. The average workweek shook off flat estimates to register a gain.
Earnings continued to pour in during the week as well, but mostly played a background role to the economic news. And after dominating the news for weeks while oil gushed into the Gulf of Mexico, the sealing of BP’s Gulf gusher drew relatively little attention.
Looking ahead
We’ve reached that point in earnings season where investors have largely taken what they can from the quarter in terms of what it can tell them about the economy and broader corporate landscape. Individual reports will certainly still be important to the companies involved, but we shouldn’t expect to see too much more broad market impact from isolated reports.
Overall it has been a good reporting season for stocks, with more than three-quarters of reporting S&P 500 companies beating Wall Street’s estimates. However, investors will now be looking ahead to the third and fourth quarters as well as turning their attention back to the economy.
The economic calendar will have a fair number of notable reports again next week. Early in the week we’ll see wholesale inventories and get a rate decision from the Federal Reserve. In the back part of the week reports will cover initial unemployment claims, CPI, retail sales, and the University of Michigan sentiment report.
Current expectations show wholesales inventories, CPI, retail sales, and sentiment all posting gains while unemployment claims will fall after last week’s spike. Investors are likely to hone in on both retail sales and sentiment as there has been concern that strapped consumers will fail to come out and spend during the important back-to-school season.
The Fed’s rate-setting report is unlikely to surprise investors in terms of where the Fed pegs its key interest rate. Investors will, however, be watching for any changes in the Fed’s commentary released with the decision, particularly as it pertains to additional stimulus activity that the Fed may undertake.
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