YAHOO[BRIEFING.COM]: Weekly Recap - Week ending 30-Jan-09

The stock market suffered a fourth straight losing week on the back of mostly bad economic data, mostly cautious earnings guidance, and continued indecision in Washington over how best to deal with the ongoing financial crisis.

Over 130 companies in the S&P 500 reported earnings results for the December quarter.  In doing so, it was made clear that analysts' 2009 consensus earnings estimates need to come down further as a host of major companies issued warnings while many at the same time announced job cuts.

From our vantage point, Caterpillar's (CAT) report was the most sobering one of the week given the company's industrial focus and broad geographic reach.  CAT derives approximately 60% of its revenue from outside the United States.

Briefly, the Dow component missed analysts' consensus earnings estimate for the fourth quarter, issued FY09 earnings per share guidance of $2.50 that was well short of the current consensus estimate of $4.50, said it expects recessionary conditions to persist in most of the world throughout the year, and indicated it will cut about 20,000 workers from its payroll.

Other prominent companies announcing job cuts included Home Depot (HD), Target (TGT), Eastman Kodak (EK), Pfizer (PFE), Sprint Nextel (S) and General Motors (GM).

Pfizer made news Monday for 68 billion more reasons, as that is roughly what the drug maker said it would pay in a cash and stock deal to acquire Wyeth (WYE).  The market thumbed its nose at the news of the acquisition, seeing that Pfizer cut its dividend as well and learning from analysts that the Wyeth acquisition won't necessarily produce earnings growth in the near term given various patent expiration issues.  Shares of PFE ended the week down 16%.

The corporate news wasn't all bad, yet the number of companies providing guidance ahead of consensus estimates was few and far between.  Given the tone of things thus far this year, that wasn't a huge surprise, so the market's reaction to bad earnings news this week was more muted than past weeks.

The same can be said for the economic news. 

Things started on a good note this week with the report that existing home sales rose 6.5% in December versus the prior month and that leading indicators were up 0.3% in December.  That seemingly good news was mitigated, however, by the understanding that median home prices fell 9.3% in 2008 while growth in the money supply was the swing factor for leading indicators.  In other words, the devil was in the details.

Separately, consumer confidence hit a record low while continuing claims for jobless benefits hit a record high.  Durable orders fell for the fifth straight month and new home sales fell to an annual rate of 331,000 units in December that was the lowest on record dating back to 1963.

The biggest surprise of the week was the Q4 GDP report.  Economists expected a 5.5% decline, but the advance report indicated a drop of "only" 3.8%.  This relatively good news was quickly discounted on the realization that a build in inventories contributed 1.3% to GDP and that final sales, which exclude the change in inventories and are considered a better indicator of underlying demand, declined 5.1%.

Another focal point during the week was the FOMC meeting, which culminated Wednesday with the issuance of a vague directive on the Fed's intended course of action for driving monetary policy now that it has essentially spent all of its rate cut ammunition. 

Our take on the directive was that the Fed, like the rest of us, is in a wait-and-see mode, recognizing that it has already backed a host of measures that should stimulate the economy, but thus far haven't shone through in the data to any convincing degree.  Notably, Richmond Fed President Lacker cast a dissenting vote, saying he preferred to expand the monetary asset base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.

In terms of the Treasury market, it had to contend with a flood of new supply to finance the growing deficit.  That helped drive up interest rates across the yield curve.

On a related note, the House passed its version of an $819 billion stimulus bill in a decidedly partisan vote (no support at all from Republicans).  The Senate will reportedly vote on its stimulus proposal in the coming week.

Another item that prompted a lot of discussion -- and a fair share of movement in the stock market -- was the news that the Obama administration was working toward a "bad bank-good bank" plan whereby the government will help banks get toxic assets off their balance sheets in exchange for capital. 

This report fueled a 13% gain in the financial sector Wednesday, but enthusiasm soon faded on subsequent reports suggesting there was great confusion about determining the appropriate price to pay for the toxic assets.  CNBC reported late Friday that the bad bank plan has been put on hold indefinitely. 

This report led to a weak close Friday that tipped the market into negative territory for the week and solidified the worst-ever January performance for the market, which dropped 8.6%.

--Patrick J. O'Hare, Briefing.com

**For interested readers, the S&P 400 Micap Index, which is not in the table below, dropped 0.5% for the week and is down 7.4% year-to-date.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	8077.56	8000.86	-76.70	-0.9	-8.8
Nasdaq	1477.29	1476.42	-0.87	-0.1	-6.4
S&P 500	831.95	825.88	-6.07	-0.7	-8.6
Russell 2000	444.36	443.53	-0.83	-0.2	-11.2

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