Wall Street Week - Hope for Miracles

By Markos N. Kaminis - Economy & Markets:

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Last week's "Miracle on the Hudson" was perfectly timed for a market that needed a reason to believe. The Dow Jones Industrials Index put in another losing week, falling 3.7% this time. Stocks started the period hopeful that despite the prior week's sad holiday shopping tally, maybe a fresh slate would offer reason for rise.

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

The week marked the official start of earnings season with the traditional report of Alcoa (NYSE: AA). However, the aluminum king was downgraded by a Deutsche Bank analyst even before it reported its $1.19 billion loss on Monday. Harsh corporate news dominated the week from start to finish. Citigroup (NYSE: C) awoke to selling pressure, as investors worried about its longevity as a going concern. By mid-week, Citi had sold half its stake in its Smith Barney brokerage unit to Morgan Stanley (NYSE: MS). In closing, Citi reported an $8.3 billion loss and broke the company up into two pieces.

Meanwhile, banks on the other side of the pond were not doing much better. HSBC (NYSE: HBC) shares were bombarded when a Morgan Stanley analyst expressed his view that the company might need to raise about $30 billion dollars. Investors were not enthused by the prospect of a dividend cut and/or share dilution. Meanwhile, Deutsche Bank (NYSE: DB) prepared to lose 4.8 billion euro in the fourth quarter, setting it up to report its first full year loss in five decades. A Luxembourg judge ordered UBS to return Madoff invested funds to a client who had requested their return before Bernard was indicted. Tough luck for UBS, because a mere mention within the same sentence as the pariah is harmful to brand value.

The week's trouble was not limited to banks though. Apple Incorporated's (Nasdaq: AAPL) iconic leader Steve Jobs was forced to take a leave of absence due to the increased complexity of his illness. By Friday, rumors had spread regarding the possibility that Jobs might need a liver transplant. Apple's shareholders are certainly concerned about the man for many reasons, one of which is the valuation premium the shares have commanded in comparison to peers like Microsoft (Nasdaq: MSFT). Jobs' value added leadership and strategic foresight have been accounted for within Apple's share price, and the uncertain outlook immediately put that premium at risk. Finally, Intel (Nasdaq: INTC) reported revenue expectations for Q1 that were not outside of analysts' range. Thus, after warning investors a week earlier, a relief rally ensued on Friday.

On the economic front, Tuesday's ICSC-Goldman Weekly Sales Report, measuring the first full week lacking holiday shopping stimulant in some time, showed same-store sales collapsed 2.2% year-to-year. Wednesday confirmed the hard times ahead for retail, as December's Retail Sales were reported down 2.7%, a much steeper fall than forecast by economists.

Weekly Jobless Claims, also measuring the post holiday dead zone, rose again toward recent high water marks. Claims at 524K, measured far above the prior period's 470K (revised). The week's regional manufacturing surveys from the Philly and New York areas showed ongoing sector concern. Adding to trading tumult, sentiment measures from RBC and Reuters/University of Michigan sat near six-year and half-century lows, respectively.

The Consumer Price Index (CPI) offered some relief on Friday. The core figure, which excludes volatile food and energy, showed prices unchanged in December, versus expectations for a modest increase. This was welcomed news, as it seems to have left the Fed unhampered by inflation for now. The ECB concurred as it cut its target interest rate by 50 basis points on Thursday. Europe received more U.S. sourced troubles this week though, as S&P cut its sovereign rating on Greece by one notch, to A-. S&P also recently warned Greece's European neighbors Spain, Portugal and Ireland of possible rating cuts.

Hope sprouted when President-Elect Obama sought and later received the second portion of the TARP funding. On Obama's petition, President Bush requested it for him and a skeptical Senate cleared the way for its release.

The week ahead also offers hope. The survival of an airplane and all its passengers on Thursday afternoon, despite its complete loss of engine power, served to renew belief in miracles. This wonder was well-timed, as President-Elect Obama becomes President Obama on Tuesday. With him ride the hopes of not only the nation, but perhaps the world, and it seems another miracle might be needed to save it.


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