1.30.09
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1.30.09 The 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. This is a Global problem we are facing and no one in Washington, or on Wall Street are sure of how we can get things back on track. 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, this 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). 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. 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%. In spite of all this bad news the major indices held up pretty well giving up less than 1% for the week. That is a sign that most of the weak money is already out of the market. If so, we may be looking at a floor being built under the market. We are still holding 100% CASH in both the Conservative and aggressive accounts. Till Next Time The MTA Staff |
