AND THAT’S THE WEEK THAT WAS…

For the Week Ended September 3, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (06/30/10)	Previous Week (08/27/10)	Current Week (09/03/2010)	YTD Change
Dow Jones Industrial	10,428.05	9,774.02	10,150.65	10,447.93	+0.19%
NASDAQ	2,269.15	2,109.24	2,153.63	2,233.75	-1.56%
S&P 500	1,115.10	1,030.71	1,064.59	1,104.51	-0.95%
Russell 2000	625.39	609.49	616.76	643.36	+2.87%
Global Dow	1,984.48	1,710.71	1,793.44	1,860.16	-6.26%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.95%	2.65%	2.71%	-114 bps

 

“August showers bring September flowers.”  (Is that a saying?)  After the equity market suffered its worst August since 2001, investors feared the dreaded “double-dip” was beginning.  After all, September is typically a weak month for stocks and the bearish sentiment polls were hitting levels not seen since March 2009 (just before the turnaround…could that be a good omen?).  In years of a mid-term election (like 2010), the S&P 500 has averaged a loss of just under 2% in past Septembers.  Fortunately, as the calendar flipped from August, investor sentiment shifted as well (as least for a few days) on some better than expected economic releases (including critical labor data), and the major equity indexes snapped a three-week losing streak in advance of Labor Day.  

 

The board room bonanza continued for another week as HP beat out rival Dell in its pursuit of 3PAR, though some analysts now are debating whether that $2.1 billion price-tag may be too steep.  HP also announced another $10 billion share buyback.  Intel kept on its diversification spending spree with the $1.4 billion acquisition of the wireless division of Infineon.  Private equity firm 3G Capital will soon be flipping burgers as it looks to purchase Burger King for about $4 billion.  And investor Carl Icahn must believe Lions Gate to be quite undervalued as he raised his “hostile” offer for the movie and TV studio.  (Maybe he just loves Mad Men?”)

 

In other corporate news, global IT chip sales rose by over 1% in July, calming the concerns that followed Intel’s recent negative revenue projections.  Back-to-school and holiday activity typically help propel tech firms to stronger showings in the second half of the year, though retailers remain nervous about biz spending these days.  Apple introduced an upgraded Internet-related TV and also unveiled a “new and improved” iPod.  Turning to financials, Lehman’s ex-CEO complained about the regulators’ decisions that led to his company’s demise, though Dr. B. countered with some legal jargon about how the Fed’s hands were tied and a (near) tearful speech about “great reluctance and sadness.”  Overall, banks earned over $20 billion in the second quarter, the best sector showing since 2007.  Automakers saw revenues decline in August from last year’s levels, though the comparisons seemed unfair as “cars for clunkers” had brought countless buyers onto the car lots to take advantage of the government incentives.  In fact, prior to the August numbers, GM had realized 10 straight months of increasing year-over-year sales. 

 

After flirting with the key 10,000 level on the Dow (on the downside) early in the week, investors said goodbye to August and rode a wave of optimism into the new month.  The Dow soared by over 250 points on the first trading day of September as the euphoria continued with better than expected manufacturing, retail, and labor data.  Likewise, oil prices had been following equities lower as weak economic numbers raised red-flags about future demand.  In August, crude plunged almost 9%, but rebounded a bit on the favorable releases.  Still, as oil inventory stands at a 27-year high, analysts expect prices to remain range-bound ($70-$80/barrel) for the immediate future.  Let’s hope those September flowers keep blooming after the long holiday weekend.

Economic Calendar

Date	Release	Comments
August 30	Personal Income/Spending (07/10)	Spending up though income rose less than expected
August 31	Consumer Confidence (08/10)	Surprising strength in consumer sentiment
September 1	Construction Spending (07/10)	Lowest level in 10 years
	ISM Index – Manu (08/10)	Better than expected sector strength
September 2	Jobless Claims (08/28/10)	Fell but last week’s claims revised higher
	Factory Orders (07/10)	1st rise in 3 months
September 3	Unemployment Rate (08/10)	Inched higher to 9.6%
	Nonfarm Payroll (08/10)	Lower than expected decline in jobs
	ISM Index – Services (08/10)	Slower than expected sector growth (but still growth)
The Week Ahead
September 6	Labor Day
September 8	Fed Beige Book
	Consumer Credit (07/10)
September 9	Jobless Claims (09/04/10)
	Balance of Trade (07/10)

 

The three-day weekend could not come soon enough for tired analysts, traders, and investors alike (and many probably left early after setting positions following the late-week unemployment releases).  The data came fast and furious during the week, and much of the news depicted an economy in the midst of a modest recovery…not overly strong, but not on the verge of double-dip recession either.  Personal income remained stagnant in July, but many folks increased their spending and the consumer confidence index even rose in August by a larger than expected margin.  In fact, same-store sales climbed by 3.3% last month and most retail categories bested their pessimistic expectations.  Despite the end of the government tax rebate for homebuyers that hindered construction activity, the housing sector unexpectedly received some decent news as well.  Home prices rose in June for the third-straight month and pending sales of existing homes jumped in July after two consecutive down months.  Turning to manufacturing, the August ISM index beat most economists’ forecasts and the sector has now grown for 13 months in a row.  The related ISM services index did not fare as well as the nonmanufacturing managers’ release fell to 51.5 (from 54.3 in July).  Still, any reading above 50 indicates sector growth. 

 

The labor releases highlighted the week’s economic data and investors (who prepared for the worst) apparently liked what they saw.  Though over 50k jobs were lost from the economy in August, most were government-related (temp census workers, etc.) and private companies added 67,000 folks to the workforce.  The unemployment rate edged higher to 9.6% (from 9.5% in July); however, investors focused more on the better-than-expected payroll numbers.  In another positive development, Challenger Gray & Christmas reported that planned layoffs fell 17% in August, the first month-over-month decline since April and another sign that the labor picture may be turning the corner (OK…that may be just a tad too strong?).  All eyes will be on the Fed as its digests this news and set a new course of action.  The minutes from the last policymakers’ meeting show that Bernanke and friends stand prepared to initiate new stimulus measures if need be, though they stopped short of clarifying exactly what they might do.  Overseas, economic news out of India and China depicted strong expansion in their respective manufacturing sectors and the Europe Central Bank raised its growth forecast for 2010.  (All in all, a decent week.)   

 

On the Horizon…Investors get what might be considered a bit of a reprieve as Labor Day leads them into a shortened trading week (and a late-week religious holiday will most likely mean lighter than normal volume).  The Beige Book should lend more insight into what the Fed is seeing (and thinking).  Recent regional releases have shown a slowdown in manufacturing activity so hopefully the news will be more consistent with the August ISM release.  So, enjoy the weekend; travel with the family (gas is affordable); and contribute to the growth of the economy.  

 

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)

ron@ronbrounes.com

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