A look at some of the market movers from the week:
- The East Coast was regrouping after the destruction from Hurricane Irene
- Pfizer received approval for a lung-cancer treatment
- Yoshihiko Noda is set to become Japan’s new prime minister
- Wells Fargo, JPMorgan, and Lone Star Funds won bidding for $9.7 billion in U.S. Anglo Irish loans
- The CEO of embattled Sino-Forest stepped down
- Bank of America sold half its stake in China Construction Bank for $8.3 billion
- Carl Icahn stepped up his pressure on Clorox
- Some Federal Reserve officials have favored more aggressive stimulus activity
- The U.S. Justice Department moved to block AT&T’s takeover of T-Mobile
- Costco CEO Jim Sinegal announced his departure
- Bank of New York let go of CEO Robert Kelly
- The International Monetary Fund expressed further concerns over EU bank balance sheets
- Manufacturing in Europe fell more than expected
- Netflix took a hit as Starz said it had ended talks to renew its contact with the company
- Same-store sales at major U.S. retailers increased 4.6%
- Employment numbers came in much lower than expected
Through the market close on Thursday, the S&P 500 had extended its recovery, taking on 2.3% on top of the 4.7% gained the prior week. September started with a 1.2% loss, but the final three days of August all registered gains, cutting the month’s loss to 5.7%. The late-August rally also cut the S&P’s year-to-date loss to 4.2%.
Given the growing concerns over the direction and momentum of the U.S. economy, it’s not all that surprising that all eyes were on the many economic announcements of the week. On Monday, July personal spending growth was in positive territory and ahead of June’s growth rate, but slightly behind expectations. Personal spending, on the other hand, reversed a contraction in June and handily topped estimates. On Tuesday, pending home sales fell less than expected, but consumer confidence plunged, badly missing estimates.
Wednesday we got our first peek at employment data when ADP showed an addition of 91,000 jobs in August. Though that was short of the 100,000 that was expected, investors may have simply been happy to see that jobs are still being added. More importantly, sentiment on Wednesday was buoyed by the release of Chicago’s purchasing manager index for August and July factory order growth. Both were healthier than anticipated and are notable releases because of the recent fears of a manufacturing retreat.
On Thursday a better-than-expected reading from the Institute for Supply Management that showed its index still in expansionary territory wasn’t able to keep investors spirits up. Initial unemployment claims came in higher than anticipated while productivity and construction spending both fell more than expected.
Of course the big reports of the week came on Friday morning with the release of the government’s August payroll data, and it wasn’t pretty. Overall, zero net jobs were added during the month, which was a far cry from the 70,000 that were expected. The government continued to pare jobs, slicing 17,000 during the month. The strike at Verizon had a huge impact as it pulled 45,000 from payrolls. Private employers managed to add 17,000 jobs during the month, but expectations had been for 110,000. To make matters worse, both the average workweek and hourly earnings fell during the month.
In the midst of all of the hard data being released, the Federal Reserve also released the minutes from its most recent rate-setting meeting. The aspect of the minutes that received the most attention was the debate over whether the central bank will provide further stimulus measures. Some of the committee members judged that the recent economic data may justify further stimulative measures to keep the economy on a moderate growth path. However, some other members balked at the idea, suggesting that the tools available to the Fed may have little impact on economic growth while posing serious risk of increasing inflation.
Media reports suggested that the market rallied in part due to the hope that the Fed will end up providing further stimulus. This isn’t such an obvious conclusion though as there was little downside reaction in the market when Fed Chairman Ben Bernanke gave no hint of new stimulus in his recent speech in Jackson Hole. While there have been market rallies tied directly to announced Fed stimulus, at this point investors may be just as happy — if not happier — to hear the conclusion that the economy is in good enough shape to not warrant additional stimulus.
It will be a holiday-shortened week next week with Labor Day giving investors a day away from the tickertape on Monday.
Through the rest of the week, the market will have to work hard to look for direction as second quarter earnings season is in the rearview and the economic calendar is particularly light. There will be a few notable economic releases — including the Fed’s Beige Book report, initial unemployment claims, and the Institute for Supply Management’s services index — but there may not be much to significantly move the market.
Otherwise, the market will be swinging based on investors’ continued digestion of recent economic data and the wild volatility in the stock market. There will likely be a particular focus on the country’s employment situation — not only will investors continue digesting the terrible August jobs report, but they will also be looking ahead to President Obama’s speech next week on the subject of creating jobs.
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