March 12, 2010AND THAT’S THE WEEK THAT WAS… For the Week Ended March 12, 2010
Market Matters…
Happy anniversary to you!!! After closing at 12-year lows on March 9, 2009, the market began to recover from its sheer and utter collapse and has not looked back over the past 12 months (at least not much). This week, the “bull” market (or whatever the appropriate term may be) celebrated its one-year anniversary, during which time equities have climbed about 70% (Dow: 61%, S&P 500: 68%, Nasdaq: 83%). Some analysts consider the “one-year” milestone to be crucial for the average retail (individual) investor who may have remained on-the-sidelines and missed out of the initial stages of the market rebound. Much of the buying activity has been attributed to institutions and high net worth investors as many individuals remained cautious and concerned about a short-lived recovery. Perhaps, the anniversary provides a level of comfort that the markets have indeed turned a corner and the “worst-of-the-worst” has passed. Since 1930, 13 bull markets (gains of over 20%) have lasted over 12 months. On average, they have returned over 150% and continued for a total duration of almost 4.5 years. Of course, naysayers point out that past performance is no guarantee of the future, but, for now, let the celebration continue.
The energy sector captured headlines over the week. Royal Dutch and PetroChina are forging a venture to acquire coal producer Arrow Energy for $3 billion. BP PLC expanded its global deepwater presence by buying assets in Brazil, Azerbaijan (Caspian Sea), and in the Gulf of Mexico from Devon Energy for $7 billon. Meanwhile, both OPEC and the International Energy Agency increased their estimates for world oil demand for 2010 as the global economies continue to recover, especially in emerging markets like China. In non-energy news, AIG sold its Alico biz to Met Life for over $15 billion. Cisco Systems announced a key performance upgrade to a network router that will help meet the growing demand of online video. Barclays PLC is looking to add a retail bank to its growing domestic operations as it successfully integrates Lehman (North America) into its biz model. BTW, an federal bankruptcy court examiner unveiled a highly critical report against Lehman execs and auditors (Ernst & Young), detailing a series of management missteps and improper risk-taking that contributed greatly to the firm’s collapse. Finally, the CEO of Citigroup, another poster child for the financial meltdown, offered an optimistic analysis of his institution, proclaiming it “on a path toward sustained profitability.”
Stocks celebrated the anniversary by carrying the momentum into year two and the S&P 500 even moved to a 17-month high. With little in the way of key data on the economic calendar, the indexes took a nice hiatus from the days of triple-digit moves. Positive comments from Citi, the product upgrade at Cisco, and favorable signs out of retail (see below) highlighted the news-du-jour. Oil moved to an eight-week high above $82/barrel on the stronger world demand forecasts, but tailed back a bit late in the week. Treasury successfully auctioned off another $74 billion in government notes and bonds as foreign investors continued to view domestic fixed income as somewhat of a safe-haven. Twelve months have passed from the worst-of-the-worst, yet many serious concerns remain. But for now, strike up the band and keep this bullish party going strong. Economic Calendar
Since the consumer accounts for something like 2/3 of the activity of the economy (that’s what analysts keep saying), retail statistics carry greater importance these days in projecting its overall strength. After a decent holiday shopping season, the sales numbers continue to surprise. Despite some horrid winter storms and considerable challenges within the auto sector (thanks Toyota), February retail sales unexpectedly climbed 0.3% on strong electronic store sales (in time for the Super Bowl). Neiman Marcus posted a second-quarter profit, a nice sign for the luxury sector which had struggled mightily when consumers bought only the necessities of life. Additionally, Abercrombie & Fitch is restocking its shelves in anticipation of a decent uptick in demand over the next few quarters. Though the Thomson Reuters/University of Michigan consumer sentiment index fell a bit in early March, eternal optimists point out the significant rebound it has enjoyed since last year this time. In other domestic economic news, the dual deficits continue to be a source of ongoing fears at home. While the February budget deficit soared to its highest level ever reported, its trade counterpart surprisingly declined last month though a big drop in exports has led some economists to project weaker sales abroad in the months to come.
While all eyes have been on Greece and the government’s attempt to get its budgetary house of cards in order (despite the mass protests on the street), other news out of the EU brought some additional concerns. Since Greece is a relatively minor player on the global stage, analysts hoped that data from the bigger fish would reveal prospects for continued growth. Instead, Germany, the EU’s largest economy, depicted some mighty struggles of its own as it reported a 6.3% decline in exports from January levels. News out of China also raised some eyebrows at its inflation rate climbed to a 16-month high and the government may be forced to step in with higher interest rates. Additionally, a top Chinese regulator lashed out at Google over claims that it plans to skirt local censorship rules. Apparently, if Google cannot comply with the laws of the land, it may have to leave the land and survive without the 384 million Internet users in China.
While many Fed watchers think solely of the funds rate as the primary source of monetary policy, Bernanke and friends continue to undertake other nontraditional actions designed to aid the economy. This week, policymakers began to drain some of the excess liquidity out of the system by enacting a new program involving reverse repurchase agreements (selling securities it intends to buy back later). Prez O also gave some indication about his thoughts for the future of the leadership of the Federal Reserve as he intends to nominate dovish Janet Yellen to replace Donald Kohn as Fed Vice Chairman. (Low interest rates indefinitely!!!)
On the Horizon…Inflation takes center stage though the recent rise in energy prices will not yet be reflected and the data should be relatively benign. Dr. B. kicks off another policy meeting and most analysts expect the Fed to end its policy of buying mortgage-backed securities, though offer little indication about plans to raise the funds rate. Another OPEC sighting will occur mid-week, though few expect any major production changes from those “trustworthy” folks. Happy happy!
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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