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AND THAT’S THE WEEK THAT WAS…

For the Week Ended July 23, 2010

Market Matters…         

Strike up the band and let the back-slapping, high-fiving, political grandstanding, and partisan criticizing begin.  (Yes, the mid-terms must be around the corner.)  During the week, Prez O signed into law the financial reform bill and all the oversight problems that ailed the country prior to the banking crisis now have been resolved (or have they?).  With Congress on a roll (trying to justify their jobs), the powers-that-be also moved to restore jobless benefits to 2.5 million unemployed people who have been unable to find work for over six months.  Of course, most R’s voted “nay” in this bill, touting their intense fiscal conservatism and the need to cut the federal deficit (while generating new critical talking points for upcoming Town Hall meetings).  Finally, Treasury Secretary Geithner weighed in on the expiring Bush tax cuts, claiming that the wealthiest Americans will see their tax burdens increase come January as extending such benefits could prove detrimental to the nation’s mounting deficit.  (Hey, didn’t he just steal the R’s argument?  So why aren’t they more supportive of the Administration’s tax-related decision?) 

Earnings season moved into high gear and plenty of positive trends emerged.  Despite the recent  connectivity negativity (that’s a mouthful), Apple’s profit surged and management issued strong projections for the period to come.  Likewise AT&T continued living off of Apple’s coattails and Microsoft benefited from its latest Windows 7 successes.  Though IBM bested expectations and offered a nice outlook for the year, investors were disappointed in its revenue growth.  Goldman fell victim to the SEC settlement, while rivals Morgan Stanley and Wells Fargo (maybe not a true rival?) issued favorable reports.  A few economic bellwethers, UPS and Caterpillar, enjoyed strong quarters and both raised guidance, while Ford continued making strides in leading the domestic automakers.  In other corporate news, GE expressed confidence in the economy by raising its dividend by 20 percent; GM looked to boost its financing arm with the $3.5 billion purchase of AmeriCredit; Nokia announced its intent to buy Motorola’s network equipment biz for $1.2 billion.  BP sold some natural gas assets to Apache for $7 billion as it continues to raise much-needed cash to cover ongoing spill-related expenses and future liabilities.    Meanwhile, the company was forced to brace for a tropical storm in the Gulf that could hinder its current efforts.. 

Oil prices held steady as the potential damage from the Gulf storm appeared likely to be minimal (famous last words?).  Stocks soared higher throughout the week on favorable earnings reports and positive news from Europe (were those bank stress tests credible?) as the major indexes finally toyed again with breakeven on a year-to-date basis.  Bernanke provided a mid-week market hiccup as he told Congress that the domestic economy had weakened, but offered no plans for further stimulus in the current environment.  For the time begin, investors moved beyond his remarks rather quickly and focused on the positive signs from Corporate America and abroad.  S&P 500 even pushed past 1,100 for the first time in over a month.  Yes, the trend remains a true “friend,” as investors pick and choose which headlines are most worthy of their attention and, so far,  the “ayes have it” (though naysayers are generating new talking points all the time.).  

Economic Calendar

This week, Dr. B. made his semi-annual trek to Congress and warned about some “uncertain” signs in the economy.  He offered a somewhat weaker outlook than in the past, but stopped short of announcing any new Fed actions aimed at jumpstarting the sluggish recovery.  He addressed the ballooning deficit and warned that any future stimulus spending (or even tax cut extensions) must be considered only with an eye toward the budget and possible expenditure offsets.  Of  course, labor remained his key concern and he pointed out that the current pace of jobs creation will do little to reduce the high unemployment rate in any dramatic fashion.  (And thus the quandary…how to stimulate the economy without adding new pressures to the budget deficit?)  Bernanke also expressed less worry about the European sovereign debt issues (and any future contagion), but indicated that his team will continue to monitor the situation abroad. 

Speaking of…only seven European banks failed the government stress tests, a sign that its system may not be as bad as predicted (OR, perhaps revealing that the tests were not as tough as they should have been).  Additionally, favorable economic news from the region showed that its manufacturing and services sectors are growing faster than expected and the third-quarter is off and running to a promising start.  Unfortunately Moody’s threw a dagger into the euphoria by downgrading Ireland’s debt and placing Hungary’s on track for a similar negative move.  

Closer to home, housing starts fell in June, though the sector received some decent news when building permits for future construction activity rose unexpectedly.  Likewise, existing home sales dropped last month though analysts were looking for a more severe decline, and the median sales price actually rose by one percent from last year’s levels.  Leading economic indicators fell for the second month out of the past three, a rather poor precursor for future activity.  On the other hand, the National Association for Business Economics (NABE) reported that over 30% of its surveyed business owners hired new workers last quarter, the highest level in three years, and an even higher percentage (39%) expect to do so during the next six months.  (By comparison, only six percent of similar respondents reported new hires a year ago.) 

On the Horizon…After a sharp drop last month on continued labor concerns, the July confidence index gives analysts an updated glimpse into the mind of the consumer.  Bear in mind, the weakness in labor not only impacts those folks looking for work, but also others who are gainfully employed but remain hesitant to spend much outside of the necessities of life for fear that their situations could change in a fleeting moment.  Therefore retailers, manufacturers, and services industries are affected as well as fewer dollars circulate throughout the economy.   On that note, investors get their first look into 2nd quarter GDP and most analysts expect a continuation of the slow but steady growth of the initial three months of 2010 (last revised to +2.7 percent).  Oil companies take center stage on the earnings front as BP (7/27), ConocoPhillips (7/28), Exxon-Mobil (7/29), and Chevron (7/30) all post their quarterly results.  Anything of note happen last quarter, BP? 

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

(c) Brounes & Associates

www.ronbrounes.com

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