Weekly Recap - Week ending
08-May-09
The major averages continued
their upward trend this week, rallying ahead of and after the release of the
bank stress test results, though the Nasdaq underperformed as it has a lighter
weighting of financial stocks -- S&P +5.9%, Dow +4.4%, Nasdaq +1.2%, Russel
2000 +5.1%.
The Financial sector was far
and away the best this week, surging 23.0%. After weeks of leaks, the market
knew what to expect from the stress tests, with the ~75 mln in capital
requirements lower than initially feared. It also means the passing of a
significant catalyst for investors, who seem to believe a bottom has formed in
the sector and it's safe to invest there once again.
On that note, the idea that
the economy has started to bottom has lured money in from the sidelines in
recent weeks. Recently released data indicate that the end of March brought the
biggest sequential inflow of funds into mutual fund assets on a percentage basis
since April 2003, and the biggest inflow of absolute funds since April 2008.
The week started out with a
bang on Monday, as soaring overseas markets, better-than-expected economic data
and the first day of strong gains in the Financial sector led the S&P to
gains of 3.4%. That morning, Pending Home Sales came in at a
better-than-expected 3.2% in March (consensus 0.0%), while Construction
Spending came in at a better-than-expected 0.3% in March (consensus -1.6%).
Following consolidative trade
on Tuesday, the stock market rallied again on Wednesday, once again helped by
economic data. The ADP Employment change for the month of April was a
better-than-expected -491,000 (consensus -645,000).
But profit takers drove the
market lower on Thursday, ahead of the bank stress tests sheduled to be
released that afternoon (17:00ET), and helped by a poor bond offering.
Treasuries fell out of favor following a $14 billion, 30-year auction, which
failed to offer investors the yield that was desired. The results suggested
that investors are less willing to invest in the government's debt at its
offered rate. The 30-year Bond shed 89 ticks, which lifted its yield to 4.27%,
while the benchmark 10-year Note lost 36 ticks, which pushed its yield to
3.31%, which at the time was a high for the year.
The stress results showed 10
of the 19 banks tested need to raise capital in the amount of $74.6 billion.
The big banks came in as expected, and three have already taken action, with
Wells Fargo (WFC) announcing an $8.6 billion stock offering, Morgan Stanley
(MS) announcing an $8 billion stock and debt offering and Citigroup (C)
expanded its previously announced public exchange offer by $5.5 billion, which
equals its capital needs. The regional banks had one surprise, with State Street
(STT) passing the test with a capital buffer and announcing it is in position
to consider repayment of TARP.
But stocks regained those
losses on Friday, helped once again by better-than-expected economic data.
Nonfarm Payrolls came in at -539,000 in April (consensus -600,000), though the
Unemployment Rate rose as expected to 8.9%. However, part of the smaller
decline is explained by a 72,000 jump in government payrolls, which hardly
helps the wealth-producing private sector. There, widespread losses occurred,
including a drop of 149,000 in manufacturing and 110,000 in construction.
Looking ahead to next week, we
will have much fewer catalysts as the Banking industry stress tests are now
behind us and earnings season has ended. There will be plenty of economic data,
however, and investors will be looking for continued signs that the economy has
started to bottom. April Retail Sales will be released on Wednesday (5/13), PPI
on Thursday (5/14) and CPI, Industrial Production and Michigan Sentiment on
Friday (5/15).
|
Index |
Started Week |
Ended Week |
Change |
% Change |
YTD % |
|
DJIA |
8212.41 |
8574.65 |
362.24 |
4.4 |
-2.3 |
|
Nasdaq |
1719.20 |
1739.00 |
19.80 |
1.2 |
10.3 |
|
S&P 500 |
877.52 |
929.23 |
51.71 |
5.9 |
2.9 |
|
Russell 2000 |
486.98 |
511.82 |
24.84 |
5.1 |
2.5 |