5.22.09

5.22.09

Weekly Recap

The stock market started off the week on a strong note, but gave up a substantial portion of the advance throughout the week, eventually settling with modest 0.5% gain.  Economic data did not help matters with the number housing starts falling to a record low, and the number of continuing unemployment claims hitting a fresh record high.

Stocks surged on Monday, led by a 7.2% gain in financials as Bank of America (BAC) rallied after being added to Goldman Sachs' Conviction Buy List.  Goldman cited "another solid mortgage and capital markets quarter, given observable activity levels since March." Lowe's (LOW) also added to the bullish sentiment after the home improvement retailer posted better-than-expected earnings and issued upside guidance.

But the positive bias was short-lived.

Economic data were poor. The housing industry remains weak, with both housing starts and building permits falling to record laws. Starts fell -12.8% from March to an annualized rate of 458,000 units (consensus 520,000) while permits dropped -3.3% to an annualized rate of 494,000 (consensus 530,000).The positive effects were short lived as some reality started to creep into the market. Initial unemployment claims for the week ended May 16 totaled 631,000 (consensus 625,000), which was down from an upwardly revised reading of 643,000 (from 637,000) in the prior week.  Continuing claims jumped by 75,000 to a record 6.662 million, which brought the four-week moving average for this series to 6.48 million from 6.35 million. This reflects the weak U.S. labor market.

The Fed lowered its real GDP projections for 2009, 2010, and 2011. The FOMC also discussed increasing purchases of agency and Treasury securities, but all members felt it was appropriate to wait further to see how policy actions implemented to date influence the economy and financial conditions before adjusting the size and timing of such purchases.

The U.K. had its sovereign debt rating outlook downgraded to negative from stable at Standard & Poor's, which cited an increasing debt-to-GDP ratio.  In turn, this spurred a sharp decline in the dollar and Treasuries on concern that the U.S. may also face a negative outlook on its AAA rating.  For the week, the dollar fell 3.6%.

The drop in the dollar gave commodities a boost, with crude prices surging 9.4% and the CRB Index advancing 3.3%.

There was some action on Capitol Hill, with Treasury Secretary Geithner testifying before the Senate Banking Committee and House Financial Services regarding the state of the financial market.  In addition, the Senate passed a bill increasing restrictions on the credit card industry, which was subsequently signed into law by President Obama.

The Credit Card companies will get hurt by this new law, and they should. They have had free run over their customers for years. At one time, Interest on cards was limited to 9%.  Politicians over the years have eased, and now they charge as much as want. Some poor folks are paying in the 25+ %figure. What makes it all the more interesting is the fact that the State of Delaware is where all of these companies are incorporated. Vice President Biden was the Senator from there for all the years and was receiving large donations for helping them to get government approval for raising their rates.

The market has been trying to get above it 200 day M.A. for three weeks.

 Let’s see what the coming week brings. We again will be 100% in CASH.

Till next time

The MTA Staff