AND THAT’S THE WEEK THAT WAS…

For the Week Ended May 28, 2010

 

Market Matters…           

                           

Market/Index	Year Close (2009)	Qtr Close (03/31/10)	Previous Week (05/21/10)	Current Week (05/28/10)	YTD Change
Dow Jones Industrial	10,428.05	10,856.63	10,193.39	10,136.63	-2.79%
NASDAQ	2,269.15	2,397.96	2,229.04	2,257.04	-0.53%
S&P 500	1,115.10	1,169.43	1,087.69	1,089.41	-2.30%
Russell 2000	625.39	678.64	649.29	661.61	+5.79%
Global Dow	1,984.48	2,021.70	1,770.00	1,780.30	-10.29%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	3.83%	3.20%	3.30%	-55 bps

 

When China talks, people (investors) listen.  (Hey, didn’t that use to be the US’s role?)  During the week, Treasury Secretary Geithner spanned the globe, sharing his views on international economic affairs to anyone who would listen (and the markets responded with a collective yawn).  Meanwhile, late in the week, the China State Administration of Foreign Exchange provided a vote of confidence to the euro-zone and its “ailing” sovereign debt, by discounting rumors that the country was planning to unload EU-related securities; additionally, the agency stressed that Europe remained a key investment market for China.  On that news, equities skyrocketed with the Dow rising close to 300 points in a day and reclaiming the previously relinquished 10k threshold.  So, just who is the latest greatest economic Superpower these days?   

 

Transactions dominated much of the biz news of the week as boardrooms continue to express confidence (that seemed to be lacking in the markets for much of the month).  IBM will be acquiring Sterling Commerce from AT&T for $1.4 billion in a move to enhance its B2B software presence.  Gentiva is buying Odyssey Health in a $1 billion deal to form the largest domestic home-health and hospice company.  Toys “R” Us is planning a $800 million IPO as its operations have shown nice improvements during what has been a challenging period for many retailers.  In other corporate news, Apple successfully launched iPad in nine European countries during the week; not to be outdone, Dell introduced the latest competitive touch-screen tablet called Streak.  BP struggled with the Gulf oil spill on two fronts…“Top Kill” became its latest strategy to plug the well (or, at least, try), while politicos continued to lash out at the company’s ongoing efforts and its overall preparedness (or lack thereof) for such a tragic event (which will likely pass Exxon Valdez in terms of devastation).  Fearful about the negative PR over “Obama’s Katrina,” the prez suspended drilling projects and future permitting for the Arctic region until next year, a move that hinders a significant Royal Dutch Shell program scheduled to commence off Alaska over the summer.  Distressed over the decision, Shell also made headlines by purchasing East Resources, a natural gas exploration company for $4.7 billion, in the latest industry move to target the potential for shale-gas production.  

 

Crude continued its freefall early and even plunged below $65/barrel on ongoing concerns about Europe.  By mid-week, a government report showed an increase in oil demand and prices began to rebound back above $70 on the positive EU-related statements out of China.  Despite the strong showing for the domestic economy (see below), investors remained in panic mode over the sovereign debt issue and the Dow even closed below 10,000 for the first time since early February.  Enter China State Administration of Foreign Exchange…equities advanced dramatically on the perceived vote of confidence, only to give up some ground late in the week on more alarming news out of Spain (thanks Fitch Ratings).  Investors also looked to lighten positions heading into the long holiday weekend.  May could not end soon enough and was the worst performing month for equities since February 2009.  Enjoy the much-needed break. 

Economic Calendar

Date	Release	Comments
May 24	Existing Home Sales (04/10)	Best showing in 5 months
May 25	Consumer Confidence (05/10)	3rd consecutive monthly increase
May 26	Durable Good Orders (04/10)	Best showing in 3 months
	New Homes Sales (04/10)	Big push before tax credit expiration
May 27	Jobless Claims (05/22/10)	Smaller-than-expected decline in claims
	GDP 1st qtr revised	Slightly lower pace of growth than initially reported
May 28	Personal Income/Spending (04/10)	Spending flat, while income rose
The Week Ahead
June 1	Construction Spending (04/10)
	ISM Index – Manu (05/10)
June 3	Jobless Claims (05/29/10)
	Factory Orders (04/10)
	ISM Index – Services (05/10)
June 4	Non-farm Payroll (05/10)
	Unemployment Rate (05/10)

 

While investors continue to play their Nervous Nellie roles over the pessimistic news out of the EU, the Organization of Economic Cooperation and Development (OECD) increased its outlook  for global growth (even in the euro-zone).  The OECD forecast that the combined GDP of the 31 participating countries  will grow by 2.7% in 2010 after initially projecting a rate of 1.9% back in November.  Fitch and the IMF both seemed to disagree about Spain’s prospects, at least, as the rating service downgraded its debt one notch below the AAA level and the IMF urged leaders to  immediately “overhaul” the country’s labor laws and “reform” its pension system.  During the week, the Spanish gov enacted an additional $18 billion in budget cuts to help ease it ballooning deficit over the next two years.  Despite the enhanced instability between N. and S. Korea, Asian nations continued to counter the global economic concerns raised in Europe as China, Japan, Taiwan, Singapore, and Malaysia each reported solid growth in the first quarter of the year. 

 

While the Fed undoubtedly is keeping a close eye on the developments in Europe, at least one policymaker remains less concerned about the overall  impact on the rest of the world.  St. Louis Fed President Bullard does not see the global economy falling back into a recession and does not even foresee a financial contagion spreading from Greece to Spain and beyond as the bailout plans should help buy some critical time for the ailing countries to clean up these fiscal affairs. 

 

Closer to home, the housing sector received decent news from recent sales data (both existing and new home sales) as buyers rushed to take advantage of the tax incentives that expired in April.  While some analysts predict a setback over the next few months, others point to the historically low mortgage rates (fell to lowest level of the year) and hope that the renewed activity continues through the summer when many families plan to move before the new school year begins.  Meanwhile, consumer confidence grew for the third consecutive month as folks became less pessimistic about the job situations.  First quarter GDP expanded at a revised 3% rate, below the initial 3.2% report, but still a nice pace as the new data depicted growth in corporate profits. 

 

On the Horizon…Say goodbye to May (and don’t let the door hit you on the way out).  June begins amid some serious investor anxiety (that hopefully a long holiday weekend can help cure).  The late-week news about the downgrade in Spain renewed fears about a European contagion and threats of a double dip recession across the continent (and beyond).  Still, the domestic economy remains in recovery mode (for now).  The short work week brings an array of economic releases from all sectors, none more anticipated than unemployment and non-farm payroll.  Last month, payroll additions experienced the fastest pace of growth in four years, though the jobless rate inched closer to 10 percent.  So, is gas still affordable this holiday weekend? 

 

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

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ron@ronbrounes.com

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