Weekly Recap - Week ending 10-Jul-09

The S&P 500 lost ground for the fourth straight week as investors stuck to the sidelines for the most part, held back by the specter of upcoming second quarter earnings reports and festering concerns about prospects for an economic recovery in the U.S.

Concerns about the economy shined through in a number of areas.  In particular, commodities -- and oil in particular -- had a very tough week.  The CRB Commodity Index dropped 5.0% while crude futures slumped 10.3% to $59.83 per barrel, settling below $60 for the first time since mid-May. 

Not surprisingly, the energy sector (-3.8%) was a major laggard, underperforming the broader market along with the industrial sector (-2.7%) and the basic materials sector (-2.9%). 

As it so happened, all 10 economic sectors lost ground this week, with the defensive-oriented health care (-0.3%) and consumer staples (-0.3%) sectors faring the best of a bad lot.

The defensive leaning didn't end there, though. 

U.S. Treasuries were scooped up eagerly in spite of $170 billion of new supply hitting the market this week alone.  The 10-Year Note auction on Wednesday, in fact, saw a very strong bid-to-cover ratio of 3.28 (i.e. 3.28 bids received for every bid accepted) that was the highest in the last 12 months.

For the week, the yield on the 10-Year Note dropped 21 basis points to 3.29%.  That should carry some positive implications for mortgage rates, yet given the obvious flight-to-quality bid, that positive consideration failed to excite the equity market.

In the midst of all of this were press reports calling attention to the idea that a second stimulus program was being discussed as a possibility. 

That's a long way from saying it's a sure thing.  After all, we're still discussing in Chicago the possibility of the Cubs going to the World Series this century; nonetheless, it was a stunning idea for investors to contemplate given Senate Majority Leader Harry Reid's assertion during the week that a little less than 90% of the initial $787 billion stimulus package has yet to be disbursed.

Separately, Dow component Alcoa (AA) disbursed the first, official earnings report for the June quarter after Wednesday's close.  Well, actually it disbursed the first, official net loss report since the aluminum maker didn't make any money in the quarter despite a 2% sequential increase in revenues to $4.24 billion. 

Alcoa threw some cold water of its own on recovery prospects when it said its aim was to cut capital expenditures 50% in 2010 on top of a 50% reduction for 2009.

Alcoa gained as much as 7% following its report, but ultimately gave that all back and closed with a 2% loss on Thursday.  For the week, Alcoa was down 5.3%.

Switching gears, the limited offering of economic data proved to be a fairly mixed bag.  The ISM Services Index for June crossed better than expected at 47% (consensus 46%; prior 44%), yet a number below 50% is still indicative of a contraction in services sector activity.  The uptick from May simply suggests the rate of decline has slowed.

The initial claims report was the ultimate mixed bag.  According to the Department of Labor, 565,000 people filed for jobless benefits in the week ended July 4.  That was the first reading below 600,000 since January and was well below the consensus estimate of 603,000.

The claims number came with an asterisk, though, as it is believed the July 4 holiday skewed the level of claims in a favorable manner.  The presumption was that there should be some reversal of that improvement in the coming week.  Beyond that, the recognition that initial claims at 565,000 is still a lousy number and that continuing claims spiked to a record high 6.883 million in the week ended June 27 were other factors that tempered the market's enthusiasm for the report.

On a brighter note, the May trade data came with a silver lining.  Specifically, the deficit narrowed to -$26.0 billion from an upwardly revised -$28.8 billion in April. 

Imports dropped again, from $150.2 billion to $149.3 billion.  Exports, however, rose to $123.3 billion from $121.4 billion.  Although that could still prove to be a one-month blip, it offered some hope that exports could now be stabilizing following a precipitous drop from last July when they hit $164.4 billion.

The net exports component of GDP should be solidly positive for the second quarter and it is our presumption that it may help produce a GDP decline closer to 1% rather than the 2% decline we currently expect.

The latter point aside, the market still flailed through Friday's session in another low volume trade at the NYSE.  A disappointing consumer sentiment number provided by the University of Michigan got in the way and followed a batch of weak same-stores sales results from the retailers that were reported on Thursday and lent a reminder that the consumer is still in the mode of saving more and spending less.

The G8 Summit was held in Italy, yet there weren't really any key declarations that came out of it -- at least none that the market didn't already know were being discussed.

There will be some key, market-moving happenings in the week ahead, though. 

We'll hear earnings reports from the likes of CSX Corp., Goldman Sachs, Johnson & Johnson, Intel, YUM! Brands, JPMorgan Chase, Google, IBM, Bank of America, Citigroup and General Electric.  The economic calendar, meanwhile, brings the latest data for PPI, Retail Sales, CPI, Industrial Production, Initial Claims, and Housing Starts, as well as the minutes from the June 24 FOMC meeting.

A market that has been in a lull since early May (the S&P closed Friday less than 2 points above its closing level on May 1) should come to life in one form or another in the coming week since there will be a lot to chew on.  In the meantime, enjoy your weekend.

Things are about to get interesting again in the stock market.

--Patrick J. O'Hare, Briefing.com

Index	Started Week	Ended Week	Change	% Change	YTD
DJIA	8280.74	8146.52	-134.22	-1.6 %	-38.6 %
Nasdaq	1796.52	1756.03	-40.49	-2.3 %	-33.8 %
S&P 500	896.52	879.13	-17.39	-1.9 %	-40.1 %
Russell 2000	497.36	480.98	-16.38	-3.3 %	-37.2 %