January 16, 2010AND THAT’S THE WEEK THAT WAS… For the Week Ended January 15, 2010
Market Matters…
A new year; new recovery; new economy; new hope…but still many of the same challenges (and related dialogues) continue. Mindful of the growing deficits prompted by government bailouts, Prez O. proposed a “Financial Crisis Responsibility Fee” to be paid by the nation’s largest financial services companies to raise $90+ billion over the next decade. A congressional panel began grilling various officials (banking execs, regulators, etc.) about their roles in the financial debacle and, as expected, excessive bonuses highlighted much of the heated exchange. The NY Attorney General joined the criticism as Wall Street prepared to disburse what many consider outrageous compensation packages. The SEC continued to delve deeper into the Bank of America - Merrill Lynch transaction and hopes to add new charges pertaining to the lack of shareholder disclosure. Finally, on a favorable note, the Federal Reserve actually reported strong profits from some of its innovative stimuli, much of which ultimately get paid to Treasury.
Earnings season kicked off amid great expectations. Thomson Reuters expects earnings at S&P 500 companies to triple from last year, though certain analysts are fearful that much of the improvement stems from temporary cost-cutting measures and future quarters may reveal continued weakness in day-to-day operations. Turning to the numbers, Alcoa reported a narrower loss and better revenues last quarter, but the results still fell short of expectations. Intel far surpassed its projected profits as computer shipments surged last quarter, a report that brought newfound confidence to the technology sector. One day later, however, JPMorgan-Chase disappointed investors as higher trading and investment banking fees could not compensate for the continued weakness in its consumer-driven mortgage and credit card lending areas. To add insult to injury, the firm then announced a record $9.3 billion bonus plan for investment-bankers.
In other biz news, Merck received a ratings boost from noted healthcare analysts, while Johnson & Johnson felt the wrath of government prosecutors over alleged kickbacks paid to Omnicare, a large pharmacy company that targets nursing homes. Heineken NV is looking to expand its brand with the purchase of the Dos Equis, Tecate, and Sol operations from Femsa for $5.5 billion. Hershey may enter the Cadbury sweepstake (one bidder hardly makes a sweepstakes) as the confectionery company is thought to be crafting its own proposal to compete with Kraft’s.
After trading near $84/barrel early in the week, crude tumbled over five straight sessions (to below $79) as the harsh winter storms finally moved on and oil and gas inventories rose again. Despite some early optimism over a hopeful earnings season, stocks fell sharply late in the week as the initial results disappointed investors and left analysts worried about future releases. Though the Dow Jones topped the 10,700 mark for the first time in 15-months, a late-week selloff sent cautious investors back into the safe-haven of treasuries. In reality, much of the bailout and business news of the week was overshadowed by the devastating damage caused by the earthquake in Haiti. Somehow, missed earnings and bonus debates seem a tad less important. Economic Calendar
While the U.S. may continue to stake its claims as the last great economic superpower, the eyes of the world clearly remain on China. A double-digit increase in exports brought renewed confidence to global investors who believe that “as China goes, so goes the rest of the world.” During the week, however, its Central Bank took steps to the stem the pace of expansion, fearful that such enhanced activity could actually overheat the country’s economy. Google may take measures into its own hands and leave the huge Chinese market altogether. The Internet search giant found signs of cyber-attacks on its site and traced them back to China. While Google has abided by the regulations of its government and censored certain politically sensitive materials, its execs have not taken the alleged hacking lightly and its future business decisions could have serious consequences on the ongoing trade relations between China and the U.S. (and others)
The latest Wall Street Journal forecasting survey reveals that most respondents believe the economy expanded significantly over the past three months, but 2010 could be lackluster at best. They expect GDP to have grown by 4.3% in the fourth quarter, but to slow to about 3% during the year (still beats the results of recent prior quarters); on a more positive note, they also expect companies to begin hiring again and the economy may create about 1.4 million new jobs in 2010.
Retail sales unexpectedly declined by 0.3% in December, shocking many analysts who had projected a stellar holiday season. However, November and October sales results were adjusted higher, somewhat muting the disappointing December data. The cold winter weather helped to increase output at the nation’s utilities as industrial production climbed in December. While jobless claims rose in the latest weekly release, the more closely watched four-week moving average fell to its lowest level since the summer 2008. The dreaded “I” word has yet to creep back into the economic discussions and CPI (both overall and core) only rose by a modest 1% last month. Some feared an uptick in the near future as oil prices pushed above $80/barrel, but five straight days of price declines eased such fears (at least, temporarily). Dr. B. again lashed out at his critics who want to trim back some of the Fed’s oversight role, claiming such a move would hinder the policymakers’ abilities to help direct the overall economy. Most Fed watchers do not expect any action at the January 26-27 meeting, though the accompanying statement is sure to be perused with a fine tooth comb for signs of how/when the Fed expects to unwind certain stimuli.
On the Horizon…JPMorgan’s (somewhat) disappointing results could foreshadow some weak reports next week from Bank of America and Citigroup, both of which rely significantly on consumer activity. Additionally, its bonus announcement could set the stage for some even more controversial compensation moves as Goldman Sachs tends to lead the way in such employee rewards. Among financials, Goldman, Morgan Stanley and American Express also report earnings next week, while Starbucks and McDonalds lend some new insight into how consumers are spending their discretionary budgets. Leading economic indicators have risen over eight consecutive months so one more positive showing could promote additional optimism.
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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