REVIEW OF ECONOMY AND FINANCIAL MARKETS FOR WEEK ENDED JULY 17 2009

 

 

 

 

Market Statistics                   52 week
            Low High
Dow Jones +597.42  points +7.33% to 8743.94   6,547.05 13,058.20                                             
Nasdaq +130.58  points +7.44% to 1886.61   1,268.64 2,549.94
S&P 500 +61.25  points +6.97% to   940.38      676.53 1,426.63
Crude Oil +$3.67/barrel +6.13% to $63.56   $33.87 $145.29
Gold +$25.00/oz +2.74% to $937.20   $704.90 $1,001.80
10 Year Tsy +0.354% to 3.651%   2.04% 4.32%
             
             

 

 

                                                                                                      

 

 

 

 

 

 

 

 

 

 

WALL ST JOURNAL

 

 

 

OVERVIEW:

Take a deep breath and hold onto that smile after the sizeable gains in all the “at risk’’ investments this past week, but keep the indigestion tablets nearby.

We said last week that eyes would be on second quarter earnings reports and the “big names” did not disappoint a market looking for good news. Goldman Sachs in the financials and Intel/IBM in the technicals reported strong results and positive guidance. The credit card issuers reported lower delinquencies in June, leading to a big rise in shares of American Express and others for the week.

Those investors moving back and forward between risk aversion and increased risk appetite threw caution to the wind and bought up equities and commodities and moved out of Treasuries.

 We really aren’t gloom and doom (you might think otherwise after our previous blogs), but we continue to be concerned about the dark clouds out there. While it is perhaps no longer the “Day After Tomorrow” scenario, it’s also not clear blue skies and calm sailing, just because of the past week. We have talked about the following issues and they still loom large over the economy:

  • Serious damage to consumer equity which will take time to repair.
  • Unemployment which will continue to rise.
  • Toxic assets on Bank’s balance sheets which have not been effectively addressed.
  • Deterioration in the Commercial mortgage sector.
  • Stress on States with large Budget Deficits.
  • Rising National Budget Deficit due to the Stimulus Package, funding for Afghanistan and Iraq and declining tax revenues tied to the recession.
  • Economic impact of proposed legislation on Health Care and Climate Control .

 

We believe there is still a disconnect between market optimism and reality of the  economic fundamentals.

 

STOCK MARKET:

The numbers speak for themselves in the strength across the board , the best since March. The unknown last week was whether CIT, a key lender to small and medium size businesses was going to be able to avoid bankruptcy, as it did not appear to fall in to the Government’s “too big to fail” category with respect to systemic risk. While it may not fall within the definition, the financial impact on the business sector which is the driver for economic recovery will be significant.

Where are the markets after such a huge week? They are still in negative territory for the year albeit in single digits. The momentum of last week is likely to carry through for part of this week, but we cannot see any significant forward movement .

 

COMMODITY MARKET:

As the good news poured in last week, the commodity sector shared in the appetite for more risk .But just as the stock market rose in the face of concerns we have raised above, so have the commodity markets, particularly in the light of likely continued  weak demand .How long does the momentum last ?We haven’t a clue ! We do know that as is typical in these  markets, the pros will be out just as the smaller players buy in.

 

CREDIT MARKET:

Treasury prices  fell (yields rose)  as investors moved away from  risk averse assets into equities and commodities, reversing the trends of the past month. With no major auctions this week, any movements will be reflective of the equities and commodities.

 

John Jacobs

 

 

 

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