AND THAT’S THE WEEK THAT WAS…

For the Week Ended September 4, 2009

Market Matters…         

Welcome to September, an historically poor performing month for the equity markets.  In fact, according to Ned Davis Research, since 1900 the Dow Jones has averaged a decline of over one percent, the only month to generate such a negative annual return.  Par for the course, the Dow started the month with a 186-point loss, though it managed to gain a bit of ground as the week progressed.  Volume remained light as the Labor Day holiday represented the last chance for traders to head to the Hamptons (at least, those who can still afford their summer homes).  

Another sign of business confidence has reemerged as of late as corporate transactions seem back in vogue, and not just bargain basement deals structured to avoid bankruptcies (or worse).  According to Dealogic, after falling to the lowest levels in over a decade last March, IPO filings in July climbed back into double-digits (14) for the first time in a year.  In merger news, oil  services firm Baker Hughes is buying rival BJ Services for $5.5 billion.  Disney is looking to add Marvel Entertainment’s characters like Spider-Man to its Mickey Mouse funhouse to the tune of $4 billion.  Private equity shops returned to biz as Silver Lake led a team of investors in acquiring a sizable stake in Skype Internet from EBay.  While activity remains far below the levels of a few years ago, a renewed boardroom buzz is typically quite positive for the markets. 

In other corporate news, Ford reported a sizable jump in August sales as the Cash for Clunkers program continued to yield strong results.  While many dealers still wait “patiently” for reimbursements, the gov confirmed that all approved submissions will be paid by the end of the month.  Bank of America wants to repay $20 billion of its $45 billion Troubled Asset Relief Program (TARP) federal bailout moneys and hopes to regain some autonomy to manage its own affairs.  (Did CEO Ken Lewis learn any lessons?)  BP PLC made a nice oil discovery in the Gulf of Mexico, though traders seemed unimpressed as crude prices fell back below $68/barrel on concerns that energy demand will drop further once the summer travel season comes to an end.  On a related note, natural gas prices dropped to a seven year low as inventories rose again, a potentially welcome relief for consumers once those winter heating bills hit their mailboxes.  . 

An early week decline in the Shanghai index prompted some domestic selling as well as the Dow experienced a four-day losing streak and the S&P 500 even fell (briefly) below the critical 1,000 level.  Still August was a strong month for stocks as the Dow (+3.5%), Nasdaq (+1.5%), and S&P 500 (+3.4%) all experienced favorable returns.  By Friday, investors (at least those who chose to work) breathed a collective sigh of relief about the unemployment data (see below) and took advantage of the recent selloff to add positions prior to the weekend.  Again, volume was light so analysts are not reading too much into the activity of the week.  Come Tuesday, Labor Day will have passed, the summer will have unofficially ended, and traders should be rejuvenated from a few days away from their screens.  Hopefully, September will not live up to its historic reputation and investors can continue with the bullish trend of the past few months.  (A man can dream!) 

Economically Speaking…        

Weekly Economic Calendar

No use burying the lead.  While economists digested a vast array of releases during the week (as well the Fed minutes, a key business survey, and comments from the International Monetary Fund head), all eyes were clearly pointed to the late-week unemployment data.  Though the actual jobless rate climbed to 9.7%, its highest level in 26-years, the nonfarm payroll number actually gave analysts reasons for optimism.  While 216,000 jobs were contracted from the economy in August, the results actually were better than expected.  Bear in mind, earlier in the year, nonfarm job losses exceeded 700,000, so the current release represented a virtual “picnic” and the decline in payroll was the lowest in a year.  (For clarification…a “lower decline” is a good thing.)  Though most experts still believe a 10%+ unemployment rate is all but a foregone conclusion, the improvements of the few months in terms of fewer job losses reveal that some “light may be at the end of the tunnel” for labor, a positive development for the consumer as well.

In other economic news, the manufacturing sector as measured by the August ISM index expanded for the first time since January 2008 and the services component experienced its best showing in 11-months.  Though construction spending fell in July, residential activity actually rose by 2.3% and lent more credence to the rumor that the housing slump may have ended.  Even retailers reported some optimistic news as same store sales in August fell by a lesser-than-expected percentage and apparel stores and discounters finally took advantage of some late back-to-school buying activity.  Gap, Target, and Costco all beat expectations.  The Fed released its minutes from the latest policy meeting and Dr. B and friends seemed more upbeat than in the past (and that was before the vote of confidence from the Prez). 

Looking abroad, manufacturing activity in China and Japan rose more than expected in their latest releases.  The Organization for Economic Cooperation and Development (OECD) revised its forecast for global GDP and now expects the G-7 economies to contract by 3.7% in 2009 (from a -4.1% prediction made in June).  In the “not-so-fast” category, the managing director of the International Monetary Fund (IMF) urged policymakers not to “prematurely” end their stimulus plans and to “err on the side of caution” in making monetary and fiscal-related decisions. 

On the Horizon…The trusted folks from OPEC meet on September 9th, though no output changes are expected as oil supply/demand issues remain uncertain for the foreseeable future.  (Plus, who abides by those directives anyway?) Investors cautiously assess the economy and markets, well aware of the bearish history for the fall season.  The recent downturn in the markets began in full-force last September (following the AIG bailout and Lehman bankruptcy) and the 1929 and 1987 “crashes” both occurred in October.  “Random Walk” theorists, please weigh in.  

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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