Market Matters…         

Another week…another European distraction.  While solid domestic holiday sales brought good cheer to retailers, investors focused on the Brussels summit and hoped the leaders could agree on some true solutions (finally).  Early rumors of revisions to the EU treaty (re: budgetary oversight) and a sizable addition to bailout fund brought great promise; investors also hoped the ECB would conduct additional bond purchases to limit the rise in rates throughout the region.  Instead, the treaty changes never materialized (thanks Britain), though oversight will be conducted through the Court of Justice; further, the ECB failed to commit to bond purchases, though it did lower its benchmark rate back to 1% (how did those earlier rate hikes work out?).  The IMF funding was raised by up to 200 billion euro, though the total lending capacity of the bailout fund was capped for now, leaving Italy, Spain, and others fearful of new credit crises by mid-2013.  Still, investors reacted favorably to the fact that some progress is being made  One step forward…two steps…?

Online sales grew like gangbusters in the first full week of the holiday season, gaining 15% to almost $6 billion.  A majority of the sales included free shipping, a great incentive to shoppers, though one that most likely ends as the season progresses (so procrastinators may miss out).  In transaction news, SAP AG is buying “cloud” software company SuccessFactors for $3.4 billion and JP Penney is acquiring a sizable stake in Martha Stewart Living to add a name brand to its portfolio.  (Did Martha have inside information on that one?)  Despite the recent activity, the M&A market has been lackluster at best as of late and the total value of announced transactions from August to November slumped by over 20% from the same period in 2010.  

In other corporate news, Ford announced it is reinstating a dividend after over five years as the company rewards shareholders for their confidence.  As Zynga moves closer to IPO, the social network game developer enjoyed some “positive” PR when (often controversial) celebrity Alec Baldwin was escorted from an American Airlines plane for refusing to stop playing “Words with Friends” prior to takeoff.  (Talk about an endorsement and an addiction.)  Two other IPOs (ski-operator Peak Resorts, lender Homestreet, software company WhiteSmoke) were scrapped this week, all citing unfavorable market conditions (sounds better than...failed to generate much investor enthusiasm).   Toyota reduced its earnings outlook for the year by over 50% as the Thailand floods hindered production.  Finally, snail mail may be moving at an even slower snail’s pace as the US Postal Services looks to end “next-day service” delivery and cut about 28k from its workforce in an attempt to reap over $2 billion in cost savings. 

Investors seemed to disregard the domestic news du jour and instead focused on the soap opera that is Europe.  By week’s end, they determined that the overall summit developments were considered positive, and favorable signs of the holiday season and a rebound in labor added to the enthusiasm.  Stocks moved (cautiously) higher throughout the week as the S&P and Nasdaq inched closer to breakeven for the year.  Just three more weeks to hit that “lofty” goal. 

Economic Calendar

While European leaders overcame certain dissensions to make real progress at the late-week summit, the Standard & Poor’s Rating Services remained less than impressed.  Despite the hoopla out of Brussels, S&P placed the 17 euro-zone countries on “credit watch negative.” (Actually Cyprus had already attained that status and Greece currently “enjoys” an unfavorable junk rating.)  S&P also issued similar warnings about the European Financial Stability Facility and the EU’s triple-A rating as well as several prominent (too-big-to-fail?) banks.  EU and ECB leaders raised considerable concerns over the moves, citing political motives by S&P.   (And just where were these ratings guys prior to 2007?  Making up now for lost ground and credibility?)   While investors had hoped the ECB would engage in significant bond purchases at its policy meeting, it new chair claimed his prior “promises” had been misconstrued and he refused to make any commitments along those lines.  He and his cohorts did reduce the benchmark lending rate to a historic low and initiated a few other non-traditional measures (a new Bernanke in the midst?).

Closer to home, a light week on the domestic economic calendar gave investors plenty of time to focus on the shenanigans in Europe.  Factory orders declined for the second straight month, easing some of the previous enthusiasm for the manufacturing sector.  The trade gap narrowed for the fourth consecutive month, though few analysts believe the deficit suddenly is under control.  The once ailing labor markets got another reprieve as jobless claims plunged to 381k in the latest week, the lowest reading since February, and even the less volatile four-week moving average remained comfortably under the critical 400k level that implies some job growth.  Finally the Reuters/University of Michigan sentiment index depicted its most positive consumer assessment of the economy since June. 

Bernanke and friends get together next week to debate upcoming policy and many Fed watchers expect the meeting to revolve around a future communications strategy.  These days, investors hang on every word uttered by Dr B. and the other policymakers so the Fed is taking great pains to devise the optimum way to articulate its goals about inflation, interest rates, and employment in the most effective manner. 

On the Horizon…Retail sales highlights a rather hectic week on the economic calendar as investors get another good reading about consumer activity and the holiday shopping season.  Bear in mind, Thanksgiving (Black Friday and Cyber Monday) will be included in this data.  PPI and CPI are expected to reveal few concerns on the inflation picture, something the Fed continues to closely monitor as it makes decisions moving forward (though the policymakers will have concluded their meeting before these two key releases).  And, of course, the eyes of the world remain firmly on Europe these days as Great Britain looks to prove its worth, while France and Germany continue to make policy decisions without much concern about anyone else.  BTW, will Alec Baldwin be in on the ground floor of that Zynga offering? 

(c) Brounes & Associates

www.ronbrounes.com

         
 

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