Weekly Recap - Week ending 17-Apr-09The stock market used two late-session rallies on Wednesday and Thursday to close with gains for a sixth consecutive week -- S&P +1.5%, Dow +0.6%, Nasdaq Comp +1.2%, Russell 2000 +2.4%. The Financial sector led the way once again (+4.1%), with Goldman Sachs (GS), JP Morgan (JPM) and Citigroup (C) all reporting moderately better-than-expected first quarter results. In all, seven of the ten sectors that make up the S&P 500 showed gains.

Monday was a very slow, but positive session. Thanks to leadership from financial stocks, the S&P reversed an early 1.3% decline to finish with a modest gain.

After the close, Goldman Sachs used an announcement of a $5 billion common stock offering as an opportunity to report its quarterly results a day early. The company beat by a whopping $1.79 on much better-than-expected revenue of $9.43 billion (First Call consensus $7.09 billion). However, it's worth mentioning that this was the first quarter in which the company reported on the March cycle, and it reported weaker December numbers in the footnotes of its financial statements.

But shares of GS plunged 11.6% on Tuesday on the equity offering and profit taking as they had been rebounding since they set lows back in November, including a 13.4% rally over the previous two sessions. The market as a whole declined, with the S&P losing 2.0%. Goldman pushed the Financial sector lower, while disappointing retail sales data led some to second guess the prospects of retailers, putting an abrupt end to the good news we had seen in January and February. Total Sales declined -1.1% (consensus +0.3%) while Sales, excluding autos, fell -0.9% (consensus 0.0%).

Intel (INTC) became the next big company to report first quarter results after the close, beating by $0.08 on better-than-expected revenue ($7.14 billion vs. $6.98 billion consensus), gross margin (45.6% vs. 43.6% consensus) and tax rate (1% vs. ~27% expectation). The company said for Q2 it expects revenue to be flat sequentially, or ~$7.14 billion, vs. the $7.05 billion consensus, while gross margin is expected to remain in the mid-40s. It said on the conference call that the bottom in the PC market has been reached and believes the worst is now behind the company from an inventory correction and demand-level adjustment perspective.

Nevertheless, shares of INTC sold off the next day, losing 2.4% and helping the Nasdaq underperform. But the stock and the index both closed well off their worst levels, and the other major indices ended with solid gains as the stock market rocketed higher in the last hour of trade. Financials led the way once again. The sector reversed early weakness to trade with gains for the entire afternoon, but it wasn't until that last surge that financials were able to climb to their session high, finishing with a gain of 5.6%.

There was some notable economic data on Wednesday, though it didn't appear to have much of an impact on trading. The March CPI mirrored the PPI data from the previous day in that energy prices fell a surprising 3.0%. This is probably not sustainable given recent trends in commodity prices. The CPI core rate trend differed from PPI, however. The core rate increase of 0.2% marked the third straight month of such an increase. There is at least a partial explanation for this from likely one-time impacts. Separately, Industrial Production came in negative for a fifth straight time, declining 1.5% in March. The March number was worse than the expected 0.9% decline and, notably, it rounded out a quarter in which output dropped at an annual rate of 20%.

Thursday proved to be the biggest session of the week for the stock market. Despite a slow, choppy start, stocks climbed in afternoon trading and finished with healthy gains. The Nasdaq outperformed the other major indices as shares of large-cap tech stocks rebounded from their losses in the prior session. Financial stocks also closed higher, but they lagged the broader market. Before the open, JP Morgan reported a beat of $0.08 on better-than-expected revenue ($25.0 billion vs. $23.0 billion consensus).

The reason for the slow start was disappointing housing data. Starts dropped 10.8% to a 510,000 annual rate from 572,000 in February. The level is not as low as the 488,000 dismal January number, but still the second lowest of this cycle. The March level is well below expectations of about a 540,000 level and below the three-month average of 539,000. Housing Permits fell 9.0% to a 513,000 annual rate, the lowest level of the current cycle and below the 547,000 average of the three prior months.

That brings us to expiration Friday, where stocks spent the session trading in mixed fashion, despite better-than-expected earnings reports from a trio of heavy hitters.

Google (GOOG) beat by $0.23 in Q1 as paid clicks increased ~17% y/y and the company lowered it operating expenses to $1.52 billion from $1.65 billion in the prior quarter. However, shares gave up initial gains as management made cautious comments about slowing revenue growth, saying it is still in uncertain territory in terms of the economy as users are buying less and advertisers are lowering their bids, and reminded analysts that the second and third quarters are seasonally weaker.

Citigroup beat by $0.16 as revenue came in better-than-expected ($24.8 billion vs. $22.0 billion consensus). However, shares also gave up their initial gains as the company said it didn't believe its improvement in credit costs in the quarter would continue, and said it would not change the conversion price of its upcoming preferred/common stock exchange offering ($3.25) despite the stock trading above $4. Shares ended down 9% to $3.65.

Finally, General Electric (GE) beat by nickel despite missing on the top line ($38.4 billion vs. $39.8 billion consensus). GECS revenues fell 20% y/y to $14.4 billion, but despite profit falling 58% the segment earned $1.1 billion in the quarter and the company said it remains on track to be profitable for the full year. It also said that estimated stress test results showed that the company does not need to raise additional capital, even in the Fed's adverse-case scenario.

Earnings season will pick up even more next week, with dozens of companies reporting each day, including such heavy hitters as Bank of America (BAC) and IBM (IBM) on Monday (4/20) and Apple (AAPL), Boeing (BA) and Morgan Stanley (MS) on Wednesday (4/22). But it will be a much slower week for economic data, with the exception of Existing Home Sales on Thursday (4/23) and Durable Goods Orders on Friday (4/24). The last day of the week will also be important as the preliminary assumptions from the banking industry stress tests are expected to be released.

Index

Started Week

Ended Week

Change

% Change

YTD %

DJIA

8083.38

8131.33

47.95

0.6

-7.3

Nasdaq

1652.54

1673.07

20.53

1.2

6.1

S&P 500

856.56

869.60

13.04

1.5

-3.7

Russell 2000

468.20

479.37

11.17

2.4

-4.0