AND THAT’S THE WEEK THAT WAS…

For the Week Ended July 16, 2010

 

Market Matters…         

                           

 

 

Market/Index	Year Close (2009)	Qtr Close (06/30/10)	Previous Week (07/09/10)	Current Week (07/16/2010)	YTD Change
Dow Jones Industrial	10,428.05	9,774.02	10,198.03	10,097.90	-3.17%
NASDAQ	2,269.15	2,109.24	2,196.45	2,179.05	-3.97%
S&P 500	1,115.10	1,030.71	1,077.96	1,064.88	-4.50%
Russell 2000	625.39	609.49	629.43	610.39	-2.40%
Global Dow	1,984.48	1,710.71	1,794.46	1,788.16	-9.89%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.95%	3.06%	2.94%	-91 bps

 

And what a week it was…consumers and investors alike now will be protected from those money-grubbing Wall Streeters (or will they?); Goldman exerted muscle (again) and walked away with a wrist-slap; Gulf merchants can head back to biz as usual as BP finally capped that well (maybe?); earnings season got off to a solid start (until a few banks and Google disappointed the optimists); boardroom confidence returned as transactions were once again in vogue (with even a Hef sighting); the soon-to-be-strengthened Fed admitted the economy may be slowing, but stopped short of announcing new stimuli; the streak continued (temporarily) as the Dow climbed for seven straight days, reversing the pre-July 4th downturn that lasted a similar duration. Until…

 

Political theater at its finest resumed as the Senate (rather Dems and three Republicans) passed the 2,000+ page financial reform bill and declared “it will restore confidence in U.S. financial markets, protect consumers and spur growth.”  Meanwhile, Republicans (sans three) warned about “jeopardizing the recovery…crimping the banking industry…and chided the expansion of government power it envisions.”  (Wasn’t this the one piece of legislation everyone could agree on?)  Banks immediately looked for ways around the bill through new checking account fees, enhanced derivative brokerage groups, and other measures to pass costs onto consumers.  (Yep, the legislation is already working before Prez O even signs it.)   In perhaps a foreshadowing of who will get the last laugh, Goldman settled with the SEC for $550 million over mortgage improprieties, but seemed to escape with only minor damages (though criminal charges still lurk).   

 

Alcoa, CSX (railroad), Intel, and JP Morgan jumpstarted earnings season with positive results that eased the growing concerns about a weakening economy.  However, Google, Bank of America, and GE all missed expectations later in the week, and the initial optimism soon faded (and then some).  On a positive note, the bank reports indicated that consumers now are better able to manage their debt.  In other biz news, Aon (insurance) is buying Hewitt (HR) for $4.9 bln; Hef is competing with Penthouse (FriendFinder Networks) for control over the Playboy empire; Apple was forced to address why it took iPhone 4 to market, despite knowledge of reception issues; and BP proclaimed “victory” over the well that has been spewing oil since April. 

 

Fears of a retest of the March 2009 lows soon passed as bullish investors awoke from hibernation, and embraced the initial earnings reports, the Goldman settlement, the capped oil spill, and even the passage of banking reform.  A seven-day losing streak turned into a seven-day winning streak, though plenty of skepticism remained.  Perhaps traders locked in some profits and headed to the Hamptons at mid-week as the early positive sentiment shifted on a dime.  The Fed’s less than enthusiastic comments, the weaker-than-expected showings by Google, BofA, and GE, and a late-week confidence (or lack thereof) measure sent equities into a tailspin and investors again looking to the safe-haven of treasuries.   When the dust finally settled, the major indexes closed in negative territory for the week and the nice winning streak was all but a distant memory. 

Economic Calendar

Date	Release	Comments
July 13	Balance of Trade (05/10)	Largest imbalance since November 2008
July 14	Retail Sales (06/10)	2nd straight monthly drop on weak auto sales
	Fed Policy Meeting Minutes	Concluded that economy “softened somewhat”
July 15	Jobless Claims (07/10/10)	Best showing since August 2008
	PPI (06/10)	3rd consecutive monthly decline
	Industrial Production (06/10)	Modest growth though regional reports were weak
July 16	CPI (06/10)	Core index increased by highest rate since 10/09
The Week Ahead
July 20	Housing Starts (06/10)
July 22	Jobless Claims (07/17/10)
	Existing Home Sales (06/10)
	Leading Economic Indicators (06/10)

 

Just who is an investor to believe these days?  According to recent Wall Street Journal polls, 64% of economists surveyed believe the domestic economy will strengthen over the next year, though only 33% of the general public express similar optimism.  (I’ll go with the “expert” economists on this one.)  The Fed lowered its outlook for growth as uncertainties about Europe, housing, labor, and the consumer remain, though the policymakers were content to let the existing stimulus actions (i.e. low funds rate) work their course for now.  A negative survey by the National Federal of Independent Businesses depicted that only 10% of small businesses plan to resume hiring and Dr. B. urged banks to work harder to help these companies so crucial to the economy obtain much-needed financing.  A late-week release of the Reuters/U of Michigan sentiment index revealed that consumers continue to worry about the state of affairs.  The confidence measure should not have come as a great surprise as earlier in the week, June retail sales was reported as down 0.5%, the second straight monthly drop and further indication that folks are shying away from spending in light of the difficult labor environment. 

 

In other economic news, some troubling signs from manufacturing seemed to emerge as two regional reports (Empire State and Philly Fed) revealed that the sector may be slowing from its first-half strength (impact of European sovereign debt crisis perhaps?).  Fortunately, industrial production, the national measure of factory output, unexpectedly grew in June, a nice sign that overall sector growth continues (at least for now).  Inflation remained subdued as both wholesale and consumer prices declined in June, though the core numbers (ex-food and energy) rose ever-so-slightly, but enough to shut down the deflation talk for the time being.  Overseas, China reported a slowing export growth rate and its overall pace of GDP growth even fell (to up 10.3%...we should all struggle so much).  In Europe, the debt fears continued as S&P offered a negative outlook for the UK and Moody’s cut its rating on Portugal’s debt.  

 

On the Horizon…Just a few months ago, the Fed looked to be on the verge of shrinking powers and reduced independence as Congress warned of audits and additional oversight.  Now, Bernanke and friends seemed to have emerged as victors in the reform debate with enhanced powers over large financial institutions.  In the days, weeks, months to follow, the post-passage rhetoric will rage on and new “winners” and “losers” will be projected daily.  (Don’t ever count Goldman out as a winner.)  IBM (7/19), Apple (7/20), Coca Cola (7/21), and Amazon.com (7/22) highlight the earnings news of the week as investors hope to regain some of the early momentum and discount the recent negativity of the iPhone 4 debacle.  (Even Steve Jobs is due a reprieve every now and then.)   News from housing offers insight into the struggling sector, and the results may not be pretty following the April conclusion of the government tax rebate for homebuyers (though would-be purchasers still have a few extra months to close on their previously signed deals).  Leading economic indicators often serve as a precursor for the economy over the months to come.  Any new market trends (Dow Jones streaks) to follow? 

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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