Briefing.com's Weekly Recap - Week ending 04-Sep-09

Just a few weeks ago, with U.S. equity markets in the middle of their most recent upturn, market sentiment was so high that investors ignored poor economic data, only focusing on positive numbers.  That trend seemed to go out the window Tuesday as the major indices sold off sharply following a batch of better-than-expected data, but then rebounded ahead of and following poor employment data Friday.

In the end, the major indices closed the week with declines ranging from -0.5% to -1.6%.  Nine of the ten sectors that make up the S&P 500 fell, led by Financials (-3.59%).  Consumer Staples was the only sector in the black (+0.56%).

Following modest declines on Monday, presaged by a 6.7% plunge in China's Shanghai Composite on continued liquidity concerns, the major indices began the month of September, historically the worst for stocks, slightly higher.  At 10:00ET economic data showed that ISM Manufacturing returned to the expansion stage -- which Chicago PMI had done the day before -- with a better-than-expected reading of 52.9 in August (consensus 50.5).  Pending Home Sales also came in positive for a sixth consecutive month, rising 3.2% in July (consensus 1.5%).

The market, however, failed to react strongly (unlike prior weeks), and that led to selling pressure as the non-response was interpreted as a confirmation that the good news was already priced into the market and was viewed as another sign of the rally being exhausted.  The S&P dropped 20 points between 10:30ET and 11:30ET, closing with a decline of 2.2%.

The Financial sector saw the most severe declines Tuesday, causing some to make the point that the selling was the byproduct of rumors that a negative development in the banking sector was about to be announced.  Heavy put buying in Wells Fargo (WFC) on rumors of a dilutive secondary offering made the rounds, but they proved untrue as the company came out just before the close to announce it intended to repay the TARP funds it borrowed without raising equity. 

After some consolidative trade over most of the next two sessions -- which included investors shrugging off Initial Claims and ADP data ahead of Friday's employment report -- the major indices staged a late recovery on Thursday as investors covered their short positions in front of the August employment report. 

The data in the employment report was les than desirable, as a weaker-than-expected unemployment rate of 9.7% (consensus 9.5%) and downward revisions for nonfarm payrolls in June and July more than offset a slightly better-than-expected number in August nonfarm payrolls (-216,000 vs. the -230,000 consensus).

Despite the otherwise bad news, the market trended higher Friday and logged a gain of 1.3%.  Perhaps investors have already reverted back to focusing on only the positive aspects of economic data, namely the upward trend in nonfarm payrolls (August brought the smallest job loss since August 2008), but it's difficult to say when taking into account that trading volume was remarkably light Friday ahead of the Labor Day weekend.

Things may clear up during the coming week's holiday-shortened activity, although there is very little on the economic calendar other than the Federal Reserve's Beige Book on Wednesday, Sept. 9, and the weekly Initial Claims data on Thursday, Sept. 10. 

Treasury auctions may return to the forefront.  After $38 billion in 3-year Notes on Tuesday, Sept. 8, there is a $20 billion 10-year Note offering reopening on Wednesday and a $12 billion 30-year Bond offering reopening on Thursday.

Index	Started Week	Ended Week	Change	% Change	YTD
DJIA	9544.22	9441.27	-102.95	-1.1 %	7.6 %
Nasdaq	2028.77	2018.78	-9.99	-0.5 %	28.0 %
S&P 500	1028.93	1016.40	-12.53	-1.2 %	12.5 %
Russell 2000	579.86	570.50	-9.36	-1.6 %	14.2 %