One has to wonder what exactly turned the stock market around last week, while at the same time slapping some sense into the dollar and shooting down commodities like geese in open season? A lot happened last week, so it's not so easy to discern which factor was most important in driving change. We had many variables in play that ranged from the so-called
bailout of Bear Stearns (NYSE: BSC); to the Fed's opening of its coffers for the I-banks; to the easing of restrictions on Fannie (NYSE: FNM) and Freddie (NYSE: FRE); to the 75 basis point rate cut. But could it be that all, or possibly none
of these factors actually drove the change in market sentiment???Bear bailout...
We are quite sure Bear Stearns employees have a few other choice words to describe the deal that left them high and dry, and for many, unemployed. The Fed brokered, or was it strong-armed, Bear's managers into settling for $2 a share in exchange for JP Morgan Chase's (NYSE: JPM) acceptance of Bears' risk (kind of). Nice guys, those fellas at JPM are... Oh, and by the way, they also got some $60 to $80 of book value, insured by the Fed.
While it's easy to rip the deal now, if the Fed let Monday start without one, Bear Stearns might not exist today, not even at $2. Bear's mistake was in not moving its Thursday scheduled earnings report up to the Friday before it's demise. Still, Monday morning should have been soon enough to appease the market's concern; unfortunately it was not soon enough to appease the Fed's.
After Bear's competitors all reported better than expected numbers last week, and Bear basically pulled its report from the board, it seems plainly obvious that BSC would also have had uplifting news to note. Apparently, this information is now insignificant, or would that be embarrassing, to report posting selling out for next to nothing...Was it Fed action, or its limited ability to take future action that helped stocks and the dollar, and hurt commodities?
As the Federal Open Market Committee cut the fed funds interest rate 75 basis points, to 2.25%, it became plainly obvious there’s only so much the Fed can do before it runs out of gunpowder. Is it possible, however, that the stock market viewed that reality as a good thing. Maybe the stock market's rise displayed its satisfaction with the fact that there’s only so much more damage
the Federal Reserve can do to the dollar going forward.
While the government, from all its facets, desperately worked to spur the election-year economy, stocks came back to life last week at the expense of newly rich commodities. The dollar also regained some serious lost ground by the close of trading on Friday.
Yet another possibility exists as to why this occurred. Perhaps the Fed’s words also scared some trigger happy, profit-rich investors out of commodity plays at the end of last week. The FOMC Policy Statement published last Tuesday contained this prescient notation, “The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.”
Stocks got a noticeable lift on Tuesday, before giving back ground on Wednesday. By Thursday, however, the dollar was surefooted and strengthening, stocks rising and commodities crashing. The Dow Industrials closed the week up 3.4%. After first weakening sharply, the dollar strengthened to finish the week at 1.54 euros. Gold and oil closed the period well off where they started it.
Or, maybe none of the aforementioned factors drove the change, or all of them combined. Plenty of cash has built up on the sidelines, as noted by a Barron's article this weekend. The panicked public has stored some $3.45 trillion in money-market funds, and that compares to $2.2 trillion stashed away at the market low of March 2003. Plenty of capital was also piled up in the commodity market, so when catalyst came forth, money started moving into better balance (read back into equities).The Week Ahead
The last week of March offers little in the form of market-moving economic events, and mostly wraps up prior reports with final update.
We took a look at a recent forecast published by the National Association of Home Builders. The group is projecting a bottoming of housing starts this year, with modest improvement in 2009. The group interestingly forecasts the fed funds rate to average 2.17% in 2008, and that would seem to imply their view that the Fed should be near finished in its expansionary rate action.
The group's fed funds rate projection for 2009, however, looks flawed to us, as it forecasts a rate of 2.13%. At first sign of economic stability, we expect the Fed to quickly hike rates to combat inflation. Thus, we would look for a higher average fed funds rate in 2009 than in 2008. Recall the Economic Fishtail
of a monetary policy we anticipate Bernanke and Mishkin are planning, as per their own discussion in white papers and consistent with current inflation concerns.Monday
We will get some indication of the current housing situation when February’s Existing Home Sales Report hits the wire on Monday and when New Home Sales are reported on Wednesday. Bloomberg’s consensus sees the annual pace of existing home sales running at 4.85 million in February, compared to 4.89 million in January.
The week ahead holds a few noteworthy earnings reports including Monday's news from 3Com (Nasdaq: COMS), Tiffany & Co. (NYSE: TIF), Walgreen (NYSE: WAG), A.C. Moore Arts & Crafts (Nasdaq: ACMR), Feldman Mall Properties (NYSE: FMP), Hastings Entertainment (Nasdaq: HAST), Inplay Technologies (Nasdaq: NPLA), Phillips-Van Heusen (NYSE: PVH), Radnet Inc. (Nasdaq: RDNT), Sonic (Nasdaq: SONC), Universal Power Group (AMEX: UPG) and a few more.Tuesday
The state of the consumer will receive another check up this week, as the Conference Board’s Consumer Confidence Index is reported on Tuesday and the University of Michigan’s Consumer Sentiment Index reaches the wire on Friday. Bloomberg’s consensus is looking for a reading of 73.0 for the Conference Board measure, down from 75.0 in February. The ICSC will also weigh in with its weekly take on same-store sales. Last week's figure offered 1.6% sales growth, year over year.
Tuesday's earnings include Fortress Investment Group, LLC (NYSE: FIG), Jabil Circuit (NYSE: JBL), Yamana Gold (NYSE: AUY), ACME Communications (Nasdaq: ACME), Aehr Test Systems (Nasdaq: AEHR), American Medical Alert (Nasdaq: AMAC), Blyth (NYSE: BTH), Casual Male Retail Group (Nasdaq: CMRG), China Netcom (NYSE: CN), Commercial Metals (NYSE: CMC), Compton Petroleum (NYSE: CMZ), Comstock Homebuilding (Nasdaq: CHCI), Comverge (Nasdaq: COMV), CPI Aerostructures (AMEX: CVU), FiberNet Telecom (Nasdaq: FTGX), FSI Int'l (Nasdaq: FSII), Hana Biosciences (Nasdaq: HNAB), Henan Zhongpin Food Share (Nasdaq: HOGS), Kirkland's (Nasdaq: KIRK), Neogen (Nasdaq: NEOG), SAIC, Inc. (NYSE: SAI), Targeted Genetics (Nasdaq: TGEN), ValueVision (Nasdaq: VVTV), WSP Holdings (NYSE: WH) and Zi Corp. (Nasdaq: ZICA).Wednesday
Economists measured by Bloomberg expect February’s Durable Goods orders, scheduled for report on Wednesday, to increase 0.7% month-to-month. This compares with a sharp order decrease in January. Recall, because of widespread penetration of efficient just-in-time processes, orders and inventories now move on a dime and can show volatility when reported.
New Home sales are seen running at a rate of 575K in February, compared to 588K in January. While we are still analyzing winter data, spring is the most important season for housing. Still, the continuation of the decreasing sales trend in February should dim near-term hopes for the industry's shares. The S&P Case Shiller Home Price Index (Jan.) should not offer any good news either, as prices likely continued their slide.
Look for the regular mortgage activity and petroleum status reports on Wednesday morning. Petroleum inventory information should regain trading significance now that the loft is coming out of oil prices. Fed rate cut dissenter, Richard Fisher, is scheduled to find a microphone on Wednesday when he addresses a group in Texas.
Wednesday earnings include Deutsche Bank (NYSE: DB), Oracle (Nasdaq: ORCL), Paychex (Nasdaq: PAYX), Alloy (Nasdaq: ALOY), Antares Pharma (AMEX: AIS), Babcock & Brown Air (NYSE: FLY), Bluefly (Nasdaq: BFLY), China Sunergy (Nasdaq: CSUN), Citi Trends (Nasdaq: CTRN), CKE Restaurants (NYSE: CKR), Edap TMS (Nasdaq: EDAP), GenCorp (NYSE: GY), HearUSA (AMEX: EAR), Huaneng Power (NYSE: HNP), Pep Boys (NYSE: PBY), PFSweb (Nasdaq: PFSW), Resources Global Professionals (Nasdaq: RECN), Response Genetics (Nasdaq: RGDX), Robbins & Myers (NYSE: RBN), TRI-S Security (Nasdaq: TRIS) and XELR8 Holdings (AMEX: BZI).Thursday
Thursday's final take on fourth quarter GDP is expected to still show an increase of just 0.6%. Weekly Initial Jobless Claims, a closely followed barometer of the labor situation, is seen drifting to 370K, from 378K reported this past week. February's reporting of aggregate corporate profits is due for release at 8:30 a.m., and the Natural Gas Report at 10:30.
Thursday's earnings include ConAgra Foods (NYSE: CAG), Lennar Corp. (NYSE: LEN), Red Hat (NYSE: RHT), Williams-Sonoma (NYSE: WSM), Accenture (NYSE: ACN), Apollo Group (Nasdaq: APOL), CNOOC Ltd. (NYSE: CEO), Chunghwa Telecom (NYSE: CHT), Coleman Cable (Nasdaq: CCIX), Conn's Inc. (Nasdaq: CONN), Dolan Media (NYSE: DM), DSW Inc. (NYSE: DSW), Eldorado Gold (AMEX: EGO), Elixir Gaming (AMEX: EGT), Finish Line (Nasdaq: FINL), Fred's (Nasdaq: FRED), Full House Resorts (AMEX: FLL), Gammon Gold (AMEX: GRS), Global Payments (NYSE: GPN), McCormack & Co. (NYSE: MKC), Movado (NYSE: MOV), Noble Int'l (Nasdaq: NOBL), P&F Industries (Nasdaq: PFIN), Restore Medical (Nasdaq: REST), Rubios Restaurant (Nasdaq: RUBO), Scholastic (Nasdaq: SCHL), Spectrum Control (Nasdaq: SPEC), Texas Industries (NYSE: TXI), The Wet Seal (Nasdaq: WTSLA), TIBCO Software (Nasdaq: TIBX), UTi Worldwide (Nasdaq: UTIW) and Xyratex (Nasdaq: XRTX).Friday
Personal Income and Outlays are expected to show increases in February of 0.3% for income and 0.1% for spending. The PCE Deflator is expected to still measure hot (above 2.0% yr/yr), bringing inflation concerns back into focus.
Fed rate cut dissenter #2, Charles Plosser, will address a group overseas on Friday; all ears will be on Plosser, as we seek more detail on exactly what he's thinking. Considering the sudden drop in commodity prices last week, Friday’s Farm Prices Report should garner some attention. The Department of Agriculture releases its data at 3:00 p.m. The University of Michigan Consumer Sentiment Index is expected to read 70.0 for March, down from 70.8. Ironically, poor sentiment should help stock fuel for an eventual robust rally.
Friday's earnings reports include Coca-Cola Hellenic Bottling (NYSE: CCH), KB Home (NYSE: KBH), Centennial Communications (Nasdaq: CYCL), Centerstate Banks of FL (Nasdaq: CSFL), IAMGold (NYSE: IAG), Modtech Holdings (Nasdaq: MODT), North Pointe Holdings (Nasdaq: NPTE) and Steelcase (NYSE: SCS).Inquire about advertising at The Greek. If you operate a business that employs a web strategy, we can help to significantly improve your effectiveness. Ask us how - Email: ads @ WallStreetGreek.com. (disclosure)