January 29, 2010AND THAT’S THE WEEK THAT WAS… For the Week Ended January 29, 2010
Market Matters…
How should investors react when a hectic week brings…a Fed Chairman confirmation AND policy meeting, a State of the Union address, a mixed bag of earnings, and the strongest GDP growth rate since 2003? For the most part, they may have simply been too busy digesting the vast array of critical news to make any major investing decisions. These days, politics are more important and investors watched with interest: 1) the grilling of Treasury Secretary Geithner over the AIG debacle (looks like some employees may forgo a portion of those bonuses), 2) the Senate debate over Bernanke’s role in the financial crisis (grandstanding at its finest), 3) Obama’s finger-wagging over partisanship and his outstretched hands to Republicans in the form of small biz tax cuts (standing ovation) and periodic joint strategy sessions (chuckles), and 4) some presidential rhetoric about freezing domestic spending to combat the deficit (easier said than done).
When investors finally managed to pull themselves away from riveting C-Span, they found renewed interest in fourth quarter earnings season. All seemed well in tech-land (for the most part) as Apple reported it’s most profitable quarter ever and also introduced its next new thing, the iPad. TI posted strong numbers on surging chip sales. Microsoft reaped the rewards of enhanced PC sales and a successful Window 7 release. Internet shoppers helped Amazon.com’s earnings climb over 70% as the Kindle (among others) was met with nice demand. Elsewhere, Ford returned to profitability after four years and also projected job additions (for a change) in its Chicago plant. Travelers posted its best quarter since going public, a nice sign for financials. Procter & Gamble and Colgate both bested expectations as consumers continue to regain confidence (at least on life’s necessities). Not all earnings news was entirely favorable as Caterpillar experienced increased demand, but its 2010 guidance missed the Street’s forecast. And Chevron kicked off reports for the energy sector with dismal results from its refining biz.
In other corporate news, Bank of NY has interest in PNC Financial’s back office operations arm to the rumored tune of $2.5 billion. Toyota has egg on its face after ceasing sales of Camrys, Corollas, and others, but may have found a fix to the gas pedal problems. Berkshire Hathaway is replacing newly acquired Burlington Northern in the S&P 500. Google came out forcefully against censorship in China, while debating how to continue operating in that key market.
As January goes…so goes the market. Let’s hope not. (Bear in mind, equities bucked the trend in 2009 after a poor start.) Stocks never got much traction this week as investors weighed the positive earnings and GDP data (see below) against concerns about government’s heavy hand in business and the perceived “too far, too fast” market mindset (and the negativity won out). Many breathed a collective sigh of relief over the Bernanke confirmation and liked what they saw (read) from the Fed’s policy meeting (see below). Oil closed lower as traders balanced continued weak demand with newfound signs of a stronger economy. Stocks suffered their worst month since February 2009. Hopefully the “correction” has ended and equities can resume their upward trend. Economic Calendar
Strike up the band; the recession is history; let the good times roll. The economy surged ahead with a 5.7% growth rate in the fourth quarter as businesses cut inventories and also began upgrading technology and other equipment. The strong showing was the best since 2003, but most analysts do not expect similar follow-through in the quarters to come. In fact, as the Fed begins to unwind certain stimuli over the next few months, “experts” expect to see a 2.5 % pace of economic expansion for 2010. (Still beats the alternative.) In other news, existing home sales climbed in 2009 for the first time in four years, though a significant December setback proved that housing is still not out of harm’s way. As further proof, new home sales surprisingly fell in December as well. Consumers seemed more willing to dip their toes back into the “spending” pool as the confidence index rose for the third straight month to its highest level in over a year. Durable goods orders rose slightly in December though the manufacturing sector still has a ways to go in the recovery as the stat experienced it worst annual decline on record (since 1992).
Be careful of what you wish for. Congrats Dr. B. and welcome to another four-year term as Chairman of the Federal Reserve. (Ivy League economics professor sure would seem far less stressful.) Even with a “decisive” 70-30 margin of victory in his Senate confirmation, Bernanke still faces some serious reservations from politicos and will be fighting hard to help the Fed maintain its oversight role over the banking system. At the recent policy meeting, the Fed offered a more upbeat analysis, though the statement confirmed the treasury and mortgage-backed securities purchase program will be ending by March 31. Many fear that as the Fed unwinds these critical programs, mortgage rates will climb higher and the already sluggish housing sector will come to a screeching halt. For now, the Fed is leaving rates uncharged (at about 0%) and plans to do so for an “extended period.”
Looking overseas, the Greek economy (and its budget deficit) remains on thin ice though its foreign minster disputes a need for a bailout from the IMF or other European bankers. The UK economy grew in the fourth quarter at a slower than anticipated pace and rating agency S&P stated that the British banking system is no longer considered “most stable and low risk.”
On the Horizon…Earnings season plugs along and Dow Chemical (2/2) highlights the week’s reports. UPS (2/2) is often considered a benchmark for the overall economy and MasterCard (2/4) gives investors a glance into the consumer credit environment. A busy economic calendar caps off with unemployment (and wishful thinking about some January jobs additions).
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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