January 1, 2010AND THAT’S THE WEEK THAT WAS… For the Week Ended January 1, 2010
Market Matters…
“Should old acquaintance be forgot, and never brought to mind?” Well, as 2009 comes to a close, Lehman Brothers, Bear Stearns, Bernard Madoff, Alan Stanford, and even Hank Paulson have practically been forgotten. That “can-do” spirit (or greed factor) of investors seemed to have prevailed over the course of the year (or, at least, since March) and the recession/depression has all but become a distant memory. The equity market carnage has been replaced by significant double-digit across-the-board returns and the slope of the yield curve (difference between short-term and long-term interest rates) indicates that an economic recovery is well underway.
Fed watchers expect the next move in rates to be higher and the dollar reversed course from its long-standing weakness in anticipation of such action. Retailers are no longer crying “doom and gloom” (at least, not as loudly) and consumers seem to have taken to the malls (or e-commerce sites) despite their unsettling employment situations. Yes, the mood is quite different (better) than a year ago when naysayers (and even optimists) believed the world was coming to an end.
Still, plenty of unfavorable remnants remain. GMAC moved further onto the government’s coffers with another $3.8 billion bailout package. GM is saying goodbye to Saturn and Pontiac by discounting prices close to 50% from their stickers, much to the delight of those in the market for a discontinued car. (Care for an extended warrantee with that?) The FDIC expects numerous more bank failures in 2010 (and beyond) and is attempting to add provisions to related transactions (acquisitions by healthier institution) that would allow the gov to benefit from future increases in shareholder value. Morgan Stanley and Wells Fargo execs may have to live with more stock awards and deferred compensation as regulators and shareholders continue to hold management accountable and frown upon large cash bonuses (thanks Goldman). And the hostile Cadbury/Kraft saga will linger well into January.
Heading into the week, fixed income investors were nervous about Treasury’s plan to auction $118 billion in new two-, five-, and seven-year securities to conclude a year of record issuance. Somehow domestic and foreign investors found some comfort in the safe-haven of the dollar-denominated debt and the auctions were surprisingly well-received. Despite the stronger dollar, oil continued its range-bound trading as inventories fell for the fourth straight week and crude again pushed close to $80/barrel on extremely light volume. Likewise, with few traders around to give the market much direction, equities remained close to their highs for the year. A 25%-ish rise in the S&P 500 in 2009 seemed worthy of a parade down Wall Street, especially given the trials and tribulations of the past two years. In fact, 2009 represented the best year for stocks since 2003. The week/year ended on a low note, but with cautious optimism for 2010. Still, enough uncertainties prevent any widespread euphoria from taking over the investor’s mindset. A new bullish environment OR an impending correction after a “too far, too fast” move? Only time will tell. For now…We'll take a cup of kindness yet, for auld lang syne. Happy New Year. Economic Calendar
While many retailers (or those with a strong web presence) lamented the ill-timed winter storms that preceded the holidays, consumers must have gotten stir crazy during those lazy days; this past week, they hit the malls en masse in anticipation of additional last-minute bargains. Reports from both MasterCard Inc’s SpendingPulse and retail researcher ShopperTrak revealed that activity picked up nicely during the season and, in particular, over the final shopping week before Christmas. With many extending discounts through the end of the year (and perhaps beyond), retailers have yet to close their books on 2009 and many remain “optimistic” about the overall level of activity (especially given the jobs-related negativity that existed in advance).
As expected, Amazon.com appears the clear winner from an Internet standpoint as readers seemed so enthralled with the Kindle that the number of downloaded books exceeded the physical books sold by the online retailer. Consistent with the enhanced retail activity, consumer confidence rose again in December, though still remains well below the level that signifies a healthy economy. Then again, considering the confidence level experienced at the beginning of the year, its current state is a welcome reminder that the state of economic affairs continues to improve. On the labor front, jobless claims surprisingly fell to the lowest level since July 2008.
On the Horizon…The new year brings dramatic uncertainty regarding the markets and the economy. A vast array of numbers gives investors some insight into the housing, manufacturing, and labor pictures, though most will likely wait until Friday’s unemployment releases before taking significant positions one way or the other. In November, the jobless rate fell to 10% (from 10.2%) so a further move in that downward direction will be quite well-received. In another favorable precursor, a CarreerBuilder.com report claimed that 20% of HR managers surveyed said their companies will add full-time positions in 2010, while only nine percent believe they will slash jobs during the year. (The vast majority see no change in staffing.)
As far as the markets…iMarketNet Inc. estimated that investors still hold over $3 trillion in money market funds; with so much cash on the sidelines, eternal optimists believe equities have more room to run. However, a stronger dollar often hinders operations (and stock prices) of multinational companies whose products and services become more expensive abroad. The first few days of trading could prove telling for stocks. The January Effect states “As the first five days of January go, so goes the market for the year.” While some investors may sit tight and watch the activity of the first week, others look at the entire month of January as a predictor of direction for the year. According to the January Barometer, stock indexes increase over the 12-month period when they rise during January. (Then again, the S&P 500 plunged over six percent in January 2009 and ultimately soared in the months that followed, so take these indicators with a grain of salt.) In the meantime, Bernanke remains at the Fed’s helm (for now) with similar responsibilities (for now). While many politicos may grandstand against him, most investors seem to sleep better at night with him around. So recharge that battery over the holidays, Dr. B.
Brounes & Associates is a Houston-based consulting/marketing firm that performs research, marketing, and education projects for financial services companies and other professionals. “And That’s the Week That Was” is a weekly market/economic commentary that is distributed each Friday afternoon. Any financial professionals who have interest in rebranding the piece and sending to their investors should inquire to:
Ron Brounes 713-962-9986 (Direct)
(c) Brounes & Associates
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