AND THAT’S THE WEEK THAT WAS…

For the Week Ended November 26, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (09/30/10)	Previous Week (11/19/10)	Current Week (11/26/2010)	YTD Change
Dow Jones Industrial	10,428.05	10,788.05	11,203.55	11,092.00	+6.37%
NASDAQ	2,269.15	2,368.62	2,518.12	2,534.56	+11.70%
S&P 500	1,115.10	1,141.20	1,199.73	1,189.40	+6.66%
Russell 2000	625.39	676.14	724.36	732.73	+17.16%
Global Dow	1,984.48	1,947.85	2,027.85	1,978.32	-0.31%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.52%	2.88%	2.86%	-99 bps

 

So let the shopping begin!  Thanksgiving means different things to different people: grade school pageants, downtown parades, family touch football games, eating until the trousers can no longer be buttoned (and then having seconds on dessert).  But the one staple (besides the turkey and dressing) is the shopping that transpires in the immediate aftermath as consumers take to the malls (and the web) for the official beginning of the holiday season.  For months, retailers have been nervous about this year’s activity (what else is new?) as the high unemployment rate threatened to keep folks on tighter budgets.  Since the economic downturn, mall traffic has yet to achieve pre-financial debacle levels and retailers continue to yearn for a return to the glory days. 

 

Finally a few signs that 2010 may be quite “merry” after all.  Thompson Reuters predicted that same-store sales in November would climb 3.5% from 2009 and its most recent consumer sentiment index soared beyond analysts’ expectations.  The National Retail Federation forecasts a 2.3% increase in holiday spending, a vast improvement from the prior two (dreary) years.  The group also estimates that 44% of shoppers will spend some time buying online so retailers should not fret if traffic appears dimmer than desired; then again, one analysis based on satellite images claimed that mall parking lots have experienced considerably higher average “fill rates” than in each of the past two years.  Smart-phones will play a much larger role in easing the gift-buying  experience for many tech-savvy consumers as popular shopping apps will direct them to the latest specials and reward them for their loyalty by offering exclusive deals at their favorite stores.  Some retailers will even match competitors’ prices that can be proven on cell-phone screens. 

 

While the holiday may be on most everyone’s mind, many traders still focused on the biz of the day.  The Feds are knee-deep in a new vast insider trading investigation that has already targeted several prominent hedge funds, mutual fund companies, and investment consulting firms.  (If you’re not cheating, you’re not trying.)  Luxury jeweler Tiffany’s posted better-than-expected profits, yet another positive sign for the holidays.  Likewise, HP experienced sizable quarterly earnings and revenue jumps, despite a void in leadership for a period of time.  Oracle reaped an early holiday bonus in the form of a $1.3 billion jury verdict against SAP in an intellectual property dispute.  Novell and J. Crew both appear headed the private route as equity firms seek what they perceive to be values in this marketplace. 

 

Given the holiday travels of the nation’s investors, market activity can be difficult to interpret as volatility ruled the day and triple-digit moves (up and down) on the Dow became the norm this week.  International development in Korea (rockets) and Ireland (bailout) brought renewed fears about global unrest (and perhaps a contagion throughout Europe), though the favorable signs of the holiday season also lent a bullish sentiment for many.  Early in the week, bonds continued an unexpected trek lower (higher yield), despite the Fed’s best intentions with controversial QE2.  For now, enjoy the holiday (and contribute to the economy by shopping…don’t forget the cell).

Economic Calendar

Date	Release	Comments
November 23	GDP – 3rd qtr revised	Better showing than initially estimated
	Existing Home Sales (10/10)	1st drop in 3 months
November 24	Personal Income/Savings (10/10)	Nice increases in both income and spending
	Durable Goods Orders (10/10)	Largest decline since January 2009
	Jobless Claims (11/20/10)	Lowest level since July 2008
	New Home Sales (10/10)	4th drop in sales in past 6 months
	Fed Policy Meeting Minutes	Downward economic growth estimation
November 25	Thanksgiving Holiday	Markets closed
The Week Ahead
November 30	Consumer Confidence (11/10)
December 1	ISM – Manu  (11/10)
	Construction Spending  (10/10)
	Fed Beige Book
December 2	Jobless Claims (11/27/10)
December 3	Unemployment Rate (11/10)
	Nonfarm Payroll (11/10)
	Factory Orders (10/10)
	ISM – Services (11/10)

 

One step forward, two steps back…or so it often appears with each passing economic release.  During the week, GDP in the third quarter was revised upward as consumer activity seemed back on track.  In fact, that trend continued in October as both personal spending and income levels increased, giving retailers yet another reason to rejoice in anticipation of the holiday season.  Additionally, initial claims for unemployment benefits fell more than expected; even the less volatile four-week moving average dropped to its lowest level since August 2008.  On the other hand (unfortunately, there is always another hand)…durable goods orders suffered their worst showing since January 2009, a seemingly significant setback for the previously stellar manufacturing sector.  Further, both existing and new home sales fell again as buyers remain scarce given the lack of government incentive.  (Surely QE2 will help?) 

 

Speaking of the Fed…minutes from the early November policy meeting confirmed that Bernanke and friends have reduced their estimates for economic growth and some even believe that unemployment is more likely to climb than fall.  Though the stimulus (bond buying) program passed easily by a 10-1 vote, the minutes revealed more than a little bickering and perhaps even some arm twisting by the Fed chair himself.  Despite the comfortable margin of victory, certain officials fear that the program will have limited impact on the overall economy and remain concerned about the dreaded “I” word that will surely rear its ugly head as a result of the move. 

 

Looking abroad, the financial debacle in Europe just won’t go away.  Ireland became the latest to move to life support as a cool $100-ish billion seems to be heading its way; meanwhile, politicos take the difficult steps to austerity with higher taxes and lower wages that are certain to spark protests in the streets.  While its government officials seem confident that the measures will lead to a rebounding economy, many analysts are not so sure and fear a deeper contagion spreading to Portugal and Spain.  (Now, where have we heard that before?)  In other global news, North Korea launched  rockets into South Korea, stirring up new concerns about future tensions and potential economic consequences throughout Asia.  (Any help would be appreciated, China.) 

 

On the Horizon…Enjoy the holiday because the economic numbers come fast and furious next week as news from manufacturing hopefully confirms continued sector strength (durable goods notwithstanding) and investors seek some real improvement in the labor market.  Expect plenty of over-analysis of the weekend’s retail data and, of course, Ireland will be worth watching.

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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