AI
Sunday, August 17, 2008 5:31:05 PM
Weekly Recap - Week ending 15-Aug-08
http://finance.yahoo.com/marketupdate/update
After gaining 8.0% from its July 15 low entering the week, it wasn't a stretch to think the market was due for what technical analysts refer to as a consolidation period. That's a fancy way of saying the market was probably due to go sideways.
Setting the market parlance aside, sideways trading is basically what we got this week when it was all said and done. The journey along the way, though, was anything but uneventful.
There were plenty of compelling story lines, the most prominent of which was the continued strength in the dollar and the continued weakness in commodities. There is a correlation factor between the two since commodities are dollar-denominated. When the dollar strengthens, they become less affordable for foreign buyers, which reduces demand.
However, the weakness in commodity prices, and particularly oil, is more than just a currency trade. In part, it reflects burgeoning concerns about a global economic slowdown. Those concerns were fed by weak data out of Europe and Asia.
The notion that the U.S. is further along in the slowdown process than foreign economies enabled it to outperform many other major markets on the week. To wit, the S&P 500 gained 0.1% versus a 0.6% decline for England's FTSE 100, a 1.8% decline for Germany's DAX Index, a 0.9% decline for France's CAC 40 Index, a 1.1% decline for Japan's Nikkei Average and a 3.3% decline for Hong Kong's Hang Seng Index.
This relative view of things gave the dollar another nice boost since it is presumed at this juncture that foreign central banks will be quicker to cut rates than the Fed will be to tighten rates.
A narrowing interest rate differential is considered to be supportive for the depressed greenback. The dollar index, which measures the dollar's performance against a basket of 6 major currencies, surged 1.8% this week. Since the July 15 low for the S&P 500, the dollar index is up 7.4%.
The economic news this week was mixed.
Industrial production rose 0.2% in July, but it was the trade deficit for June that brought particularly good news in terms of GDP calculations. It was reported that the real trade deficit, which is price adjusted, improved to $39.1 billion from $43.1 billion in May. The reduced deficit should lead to an upward revision for second quarter GDP and implies trade will once again provide a strong boost to third quarter GDP.
The encouraging trade report was offset to an extent by a disappointing report that retail sales declined 0.1% in July. Excluding autos, they were up 0.4%.
Overall, the retail sales report was on the soft side and it piqued concerns about the pace of discretionary spending. The weekly initial claims report did the same, as the 4-week moving average increased 19K to 440,500.
Separately, the consumer price index for July didn't bring good inflation news. Both headline and core-CPI, which excludes food and energy, were higher than expected. On a year-over-year basis, total CPI was up 5.6% -- the highest rate of increase since 1991 -- while core CPI was up 2.5%, which is a level outside the Fed's comfort zone.
The market, though, managed to digest the CPI report rather well on the presumption that lower commodity prices and a stronger dollar will lead to improved inflation readings in coming months. The Treasury market seemed to be of the same volition as the yield on the 10-year note dropped nine basis points to 3.84%. The bulk of that move came in the final two sessions of the week.
Some pundits suggested, however, that the Treasury market's strength reflected more of a flight-to-safety bid than anything else.
Interestingly, there did seem to be a disconnect between the stock and bond markets as it relates to the economic outlook. The latter was underpinned by slowdown concerns while the former was led by growth-oriented areas like the consumer discretionary, telecom and technology sectors.
Retailers were a notable pocket of strength despite persistent musings about the consumer's certain demise in the face of high food and gas prices, falling home values, rising unemployment and tighter credit conditions. For the week, the S&P Retailing Index jumped 4.8%, bringing its gain since the July 15 low to 28%!
Several retailers, including Wal-Mart (WMT), Kohl's (KSS), J.C. Penney (JCP) and Nordstrom (JWN), posted better-than-expected second quarter earnings results, yet most expressed some caution about the outlook for the third quarter and/or full year.
Airlines also scored some big gains in response to the drop in oil prices, although the broader transportation average dipped 1.2% for the week in a move that many thought tracked the economic concerns being interpreted from the drop in commodity prices.
Oil prices traded as low as $111.34 per barrel before settling the week at $113.77. The settlement price marked a 1.2% drop from the prior week. Oil prices are now down 23% from the high they hit July 11.
The pullback in oil continued to be a drag on the energy sector, which slipped 0.8% this week.
It was the financial sector, though, that was this week's worst sector performer. It fell 2.8% on festering concerns about credit market conditions and low levels of business activity that saw several brokerage firms slash earnings estimates for leading investment bank Goldman Sachs (GS). Additionally, a warning from JPMorgan Chase (JPM) that it has seen a substantial deterioration in trading conditions since the end of the second quarter acted as another trigger for the selling interest.
My posting is for my own entertainment, do your own DD before pushing your buy/call button
http://finance.yahoo.com/marketupdate/update
After gaining 8.0% from its July 15 low entering the week, it wasn't a stretch to think the market was due for what technical analysts refer to as a consolidation period. That's a fancy way of saying the market was probably due to go sideways.
Setting the market parlance aside, sideways trading is basically what we got this week when it was all said and done. The journey along the way, though, was anything but uneventful.
There were plenty of compelling story lines, the most prominent of which was the continued strength in the dollar and the continued weakness in commodities. There is a correlation factor between the two since commodities are dollar-denominated. When the dollar strengthens, they become less affordable for foreign buyers, which reduces demand.
However, the weakness in commodity prices, and particularly oil, is more than just a currency trade. In part, it reflects burgeoning concerns about a global economic slowdown. Those concerns were fed by weak data out of Europe and Asia.
The notion that the U.S. is further along in the slowdown process than foreign economies enabled it to outperform many other major markets on the week. To wit, the S&P 500 gained 0.1% versus a 0.6% decline for England's FTSE 100, a 1.8% decline for Germany's DAX Index, a 0.9% decline for France's CAC 40 Index, a 1.1% decline for Japan's Nikkei Average and a 3.3% decline for Hong Kong's Hang Seng Index.
This relative view of things gave the dollar another nice boost since it is presumed at this juncture that foreign central banks will be quicker to cut rates than the Fed will be to tighten rates.
A narrowing interest rate differential is considered to be supportive for the depressed greenback. The dollar index, which measures the dollar's performance against a basket of 6 major currencies, surged 1.8% this week. Since the July 15 low for the S&P 500, the dollar index is up 7.4%.
The economic news this week was mixed.
Industrial production rose 0.2% in July, but it was the trade deficit for June that brought particularly good news in terms of GDP calculations. It was reported that the real trade deficit, which is price adjusted, improved to $39.1 billion from $43.1 billion in May. The reduced deficit should lead to an upward revision for second quarter GDP and implies trade will once again provide a strong boost to third quarter GDP.
The encouraging trade report was offset to an extent by a disappointing report that retail sales declined 0.1% in July. Excluding autos, they were up 0.4%.
Overall, the retail sales report was on the soft side and it piqued concerns about the pace of discretionary spending. The weekly initial claims report did the same, as the 4-week moving average increased 19K to 440,500.
Separately, the consumer price index for July didn't bring good inflation news. Both headline and core-CPI, which excludes food and energy, were higher than expected. On a year-over-year basis, total CPI was up 5.6% -- the highest rate of increase since 1991 -- while core CPI was up 2.5%, which is a level outside the Fed's comfort zone.
The market, though, managed to digest the CPI report rather well on the presumption that lower commodity prices and a stronger dollar will lead to improved inflation readings in coming months. The Treasury market seemed to be of the same volition as the yield on the 10-year note dropped nine basis points to 3.84%. The bulk of that move came in the final two sessions of the week.
Some pundits suggested, however, that the Treasury market's strength reflected more of a flight-to-safety bid than anything else.
Interestingly, there did seem to be a disconnect between the stock and bond markets as it relates to the economic outlook. The latter was underpinned by slowdown concerns while the former was led by growth-oriented areas like the consumer discretionary, telecom and technology sectors.
Retailers were a notable pocket of strength despite persistent musings about the consumer's certain demise in the face of high food and gas prices, falling home values, rising unemployment and tighter credit conditions. For the week, the S&P Retailing Index jumped 4.8%, bringing its gain since the July 15 low to 28%!
Several retailers, including Wal-Mart (WMT), Kohl's (KSS), J.C. Penney (JCP) and Nordstrom (JWN), posted better-than-expected second quarter earnings results, yet most expressed some caution about the outlook for the third quarter and/or full year.
Airlines also scored some big gains in response to the drop in oil prices, although the broader transportation average dipped 1.2% for the week in a move that many thought tracked the economic concerns being interpreted from the drop in commodity prices.
Oil prices traded as low as $111.34 per barrel before settling the week at $113.77. The settlement price marked a 1.2% drop from the prior week. Oil prices are now down 23% from the high they hit July 11.
The pullback in oil continued to be a drag on the energy sector, which slipped 0.8% this week.
It was the financial sector, though, that was this week's worst sector performer. It fell 2.8% on festering concerns about credit market conditions and low levels of business activity that saw several brokerage firms slash earnings estimates for leading investment bank Goldman Sachs (GS). Additionally, a warning from JPMorgan Chase (JPM) that it has seen a substantial deterioration in trading conditions since the end of the second quarter acted as another trigger for the selling interest.
My posting is for my own entertainment, do your own DD before pushing your buy/call button
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