Weekly Markets Review 04-09-2010

April 9, 2010

“Action is the real measure of intelligence.” –Napoleon Hill
Major market indices finished higher last week. The DJIA rose 0.64%, and S&P 500 rose 1.38%, and the Nasdaq rose 2.14%. Value outperformed growth and the small cap index gained 2.77%. The 10-Treasury yield gained 1 basis point on the week, closing at 3.88%.
Last week saw volatility dissipate as financial, industrial and retail stocked climbed. Risk was the rage as evidenced by the surge in the small cap index.
European governments offered a rescue package to Greece worth up to $40 billion. Most will be in the form of loans with below-market interest rates. Seems like the amount is well beneath what Greece might really need in the case of a default, but it appears to the Europeans want to look as if they are doing something. So while the 5% rates offered by the EU are well below the 6.9% rates being charged by the IMF, the deal still appears tenuous, if not a little odd. It does appear, however, that Greece will not become another Argentina. And Europe’s Union will likely remain intact. Stay tuned…
Equity Markets Review
* A key committee at the National Bureau of Economic Research, the organization that formally decides when U.S. recessions begin and end, will issue a statement Monday with its latest assessment of the downturn that began in December 2007. Notably, several members indicated the Business Cycle Dating Committee will announce it can't yet declare an end to the recession as the evidence is still mixed; though several members said they considered a double-dip recession unlikely, the length and severity of this recession make it difficult to categorically say that a recovery has begun.
* The government's bailout of the financial sector is expected to cost significantly less than originally projected. Treasury officials suggest the total cost will be $89B, including TARP, aid to Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and emergency support measures by the Federal Reserve. Treasury officials believe the government may even exit its 80% stake in AIG within a year. A year ago, official estimates put the total bailout cost at over $250B.
* Retailers reported faster-than-expected sales growth. According to Retail Metrics, same store sales climbed more than forecast. The International Council of Shopping Centers added to the upbeat retail news, reporting that chain store sales surged 9.0% in March, in line with the group's expectations of 8% to 10% growth. It was the fourth consecutive monthly gain, the largest since March 1999. The gain was boosted by an earlier Easter holiday, which accounted for about half the increase. The March increase was broad based, as most retailers met or topped estimates.
* The Institute for Supply Management reported that its index of nonmanufacturing activity rose to 55.4 in March, from 53 in February. A jump in new orders drove the gain. Anything over 50 represents expansion. The ISM also said 14 of its 18 sectors reported that business expanded in March.
* Initial jobless applications increased by a more-than-expected 18,000 to 460,000. The jump may be in part reflective of the difficulty in analyzing data ahead of the Easter holiday. Continuing claims in the prior week fell by the most this year, down 131,000 to 4.55 million, the fewest since December 2008, while the insured jobless rate ticked down 0.1 point to 3.5%, the lowest rate since January 2009. The four-week averages also continued to decline.
* JPMorgan's All Industry Output Index, which is a proxy for global growth, rose strongly in March to 56.6 from 53.8 in February. This is the highest level of PMI output index since July 2007, when the global economy was still growing at a robust pace.
* After being battered by shareholders and analysts alike, Palm is reportedly seeking bids to sell itself. The company is working with Goldman Sachs and Frank Quattrone’s Qatalyst Partners to find a buyer, and could receive bids as early as this week, with Lenovo and Taiwan’s HTC said to be among the firms that may make offers. Palm closed up nearly 11% on Friday on rumors of a takeover.
* Bank of America, JPMorgan and Wells Fargo may face as much as $30B more in losses on home-equity loans, according to a report by CreditSights Inc., a research firm which correctly predicted earlier mortgage-related writedowns for the banks. The $30B sum is almost as much as analysts’ estimates of profit at the three banks this year.
* General Motors incurred a $4.3 billion loss in the second half of 2009 as the company was hit by weak U.S. sales and began to repay government loans. But, the company said demand in China is so strong that the company may sell over 2M vehicles this year, reaching that target four years ahead of schedule. GM's China sales could exceed 3M by 2015. GM is counting on zippy growth in China and other emerging markets to compensate for weakness in the U.S.
* Apple began a battle with Google this week by adding its own advertising system, the iAd network for the iPhone. The move challenges Google's core business model and its plans to expand into mobile devices.
Weekly Sector Review
The sectors of the U.S. economy, as well as the S&P 500, have performed as follows:
Last Week’s Returns:
Information Technology… 1.80%
Materials… 1.27
Consumer Staples… (0.33)
Utilities… 0.46
Consumer Discretionary… 2.76
Financials… 2.81
S&P 500… 1.38
Industrials… 1.03
Healthcare… (0.69)
Energy… 2.37
Spending, Again
One of the central pillars of the bear case on the economy rests on the notion that consumers, in their efforts to de-lever, will become more frugal - saving more at the expense of consumption and jeopardizing the sustainability of the recovery. While this seemed more of a possibility earlier this year, recent data don’t support this scenario. According to the ICSC/Goldman Index, March same-store sales (ex-Walmart) saw a surge of 4.7% versus the same month last year, while the savings rate fell to 3.1% in February, its lowest level since October 2008. Consumer spending appears to have risen by more than 3% annualized in Q1, a trend which, if it continues, could push equity markets higher. (source: JP Morgan Asset Management)
Sports, Culture & Politics
* It is possible U.S. President Barack Obama will attend Polish President Lech Kaczynski's funeral, Polish Foreign Minister Radoslaw Sikorski said April 12 on the radio, reported Xinhua. Kaczynski, and as many as 96 others, died the morning of April 10 in an air crash near Smolensk, Russia. Sikorski said Obama sent a letter to the Polish ambassador in Washington stating the possibility of his attendance. Russian President Dmitri Medvedev will also attend the funeral, said Sikorski.
* Iran's envoy to the International Atomic Energy Agency (IAEA) said America is lying about cutting its nuclear arsenal and due to President Obama's threats against Iran, Tehran will wage complaints against Washington at the U.N. Security Council, Iran's Fars news agency reported April 12.
* The U.S. Consulate in Peshawar was the target of a well-coordinated attack carried out by Pakistani militants shortly after 1 p.m. local time on April 5. The U.S. Embassy in Islamabad is reporting that at least three employees at the compound were killed in the attack. This is the first attack against a U.S. diplomatic mission in Pakistan. The attack comes as the Pakistani military opened up offensives against militants in North Waziristan and Orakzai agencies in the tribal belt of Northwest Pakistan beginning April 1.
* The NCAA Men’s Final Four concluded with Duke edging Cinderella (Butler) for the championship, 61-59.
* The Cincinnati Reds have won three of four games after losing their first two, posting a record of three and three. They begin a three game series against the Marlins today.
The weekend’s top-five box office performers as reported by The New York Times were:
1) How To Train Your Dragon, Paramount, $43,300,000
2) Clash of the Titans, Warner Bros., $26,875,000
3) How To Train Your Dragon, Paramount, $25,350,000
4) Tyler Perry’s Why Did I Get Married Too?, Lionsgate, $11,000,000
5) The Last Song, Walt Disney, $10,018,000

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