Weekly Recap - Week ending 28-Aug-09The stock market logged another winning week -- albeit a slight one -- as a solid gain in financials was offset by losses in six of the ten economic sectors.  Overall it was a relatively slow news week with very few earnings reports, though participants did have some economic and banking data to digest.

In the end, the S&P 500 rose 0.3%, hitting fresh highs for 2009.  The financial sector led the way, advancing 0.7%, followed by the tech sector (+0.3%) which benefited from better-than-expected earnings and guidance from two bellwethers. Defensive sectors underperformed, with utilities shedding 0.7% and health care giving up 0.9%.

Economic data was mostly better-than-expected, though it failed to provide a sustainable lift for the market. Housing was in focus with two more reports coming out ahead of estimates, though from depressed levels.

New home sales for July rose at a 9.6% annualized rate to 433,000 units, which is well above the 390,000 that had been expected -- the sharpest percent rise since 2005. That helped bring inventory down to a 7.5 month supply from an 8.5 month supply. The new home sales increase comes on the heels of multiple positive reports in the housing market, signaling that the bottoming of the housing market may be near. The Case-Shiller 20-city home price index rose on a month-month basis, and the year-over-year drop impred to 15.4%. This was better than the 16.4% year-over-year drop that economists had forecasted.

The preliminary Q2 GDP reading was unchanged from the advance reading at a 1.0% annualized decline, better than the 1.5% drop that was expected. The reading benefited from a smaller-than-expected drop in consumer spending.

The latest weekly jobless claims data continue to reflect a challenging employment environment.  There were 570,000 new unemployment claims, down 10,000 from the previous week but slightly higher than expectations.  Continuing claims fell by 121,000 to 6.133 million. However, the downward trend of continuing claims should not be confused with a strengthening of the labor market. Jobs are not plentiful and the drop-off is due to workers losing their unemployment benefits.

August consumer confidence rose to 54.1 from 47.4, which was well above the 47.9 consumer confidence.  Likewise, the revised University of Michigan consumer sentiment survey for august came in at 65.7, ahead of the 64.3 consensus.

Finally, the June personal income and spending report illustrated the weak economic conditions.  Income was flat after falling 1.1% in June, worse then the expected rise of 0.1%. Meanwhile, real personal spending rose 0.2%, in-line with expectation. The gain was primarily due to the jump in auto sales due to the Cash for Clunkers package.

Banks were in focus following the release of second quarter statistics from the FDIC.  The FDIC list of problem banks expand to a 15-year high to 416 problem institutions from 305.  Although this is certainly a negative, most of the banks on the list are smaller firms as the combined assets of the problem institutions total $299.8 billion (to put this in perspective, the two largest bank holding companies -- JPMorgan Chase and Bank of America -- have more than $4 trillion in assets).  Meanwhile, noncurrent loans and leases increased for the 13th consecutive quarter, though loans between 30-80 days past due declined. The FDIC said it is running low on funds and may need to borrow from the Treasury. We expect banks to continue to face challenges, especially regional banks that have high exposure to commercial real estate.

In other financial regulation news, Fed Chairman Ben Bernanke was nominated by President Obama for a second term, as was widely expected.

In corporate news, Boeing (BA) said it plans to deliver the highly-anticipated and several-times delayed 787 Dreamliner aircraft in late 2010. Boeing expects to incur a noncash charge of roughly $2.5 billion in the third quarter.

Technology bellwether Intel (INTC) raised its Q3 revenue guidance to $9 billon, plus or minus $200 million, citing stronger-than-expected demand for microprocessors and chipsets.  The company's prior guidance was for revenue of $8.5 billion, plus or minus $400 million.

Fellow tech company Dell (DELL) reported a 23% drop in Q2 profit to $0.28 per share, but that was better than the consensus of $0.23. Dell also said it expects improved IT spending in 2010, though that is not a real surprise given depressed spending in 2009.

Year-to-date, the S&P 500 is now up 13.9%, the Dow is up 8.7% and the Nasdaq is leading the way with a 28.6% gain.

Index

Started Week

Ended Week

Change

% Change

YTD %

DJIA

9505.96

9544.22

38.26

0.4

8.7

Nasdaq

2020.90

2028.77

7.87

0.4

28.6

S&P 500

1026.13

1028.93

2.80

0.3

13.9

Russell 2000

581.51

579.86

-1.65

-0.3

16.1

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