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SmartUpdate Market News - Week Ending 10/21/2011

In the headlines

A look at some of the market movers from the week:

 

  • Kinder Morgan agreed to buy El Paso Corp for $21.1 billion
  • Anadarko Petroleum agreed to pay BP $4 billion for its part of the Gulf oil spill
  • Statoil agreed to buy Brigham Exploration for $4.4 billion
  • France and Germany were at odds over strategies for expanding the European Financial Stability Facility

 

Commentary               

In tug-of-war trading this week the bulls appeared to have the edge at week's end. A 1.9% drop on the S&P 500 on Monday was followed by a 2% gain on Tuesday, while a 1.3% slip on Wednesday was neutralized by two up days to close out the week. For the week, the S&P 500 closed out with a 1.1% gain. October's massive rally is now at 9.4% and the S&P's year-to-date loss has been trimmed to 1.5%.

Europe was once again dominating the news as the region's leaders continue to try to hammer out a plan to address fiscal issues in member countries. Early in the week, German Chancellor Angela Merkel damped optimism as her spokesman emphasized that any plan that ends up being delivered won't be a quick cure for the Eurozone's problems. Another wave of worry hit later in the week as Merkel and France's President, Nicolas Sarkozy, butted heads on approaches to making the most of the European Financial Stability Facility.

Markets were once again calmed on Friday amid talk about the European summit to be held on Sunday and potential solutions that will come from that and a subsequent meeting to be held on or before next Wednesday.

Stemming from weak economies and fiscal imbalances from countries like Greece, Spain, Portugal, Ireland and Italy, the entire single-currency region faces potential fallout. Default in one country -- Greece being the most worrisome -- could spark a blaze that would further exacerbate problems in other troubled member states. At the same time, banks throughout the region could face risks to their capital bases as the value of sovereign paper falls.

From the view of the broader global economy, a struggling Europe could further hamper the recovery efforts of other major developed economies including the U.S. and Japan. The ultimate hope is that member-state leaders, along with the European Central Bank and the International Monetary Fund, can produce a plan that will ease the concerns of bond investors, allowing fiscally troubled countries breathing room to get their balance sheets back in order.

Back in the U.S., there were a few positive economic indicators released during the week. Growth in industrial production matched the 0.2% expectation after flat-lining in August, while the Philadelphia Federal Reserve's manufacturing index jumped to 8.7 after an abysmal -17.5 reading in September. Existing home sales met expectations and initial unemployment claims fell more than expected, though they were still above 400,000. On the flip side the New York area manufacturing numbers were worse than expected even as producer prices climbed more than expected. Leading indicators also increased at a slightly slower pace than expected.

Meanwhile, the Fed's Beige Book report noted that the economic expansion continued and that consumer spending has seen a modest pickup. However, the forward outlook for many of the regions was notably weaker.

Providing some lift for the U.S. indexes throughout the week was the stream of earnings reports coming from U.S. companies. Through Thursday, 109 companies from the S&P 500 index had announced earnings, with 70% of them topping expectations. While there have been some notable disappointments, including Apple, IBM, and Goldman Sachs, they have been overshadowed to a large extent by those topping estimates including Intel, McDonalds, Honeywell, Southwest, and American Express.

 

Looking ahead

Europe will still be the headline grabber as we head into next week. On Monday investors around the world will be reacting to news coming out of the Sunday summit of the region's leaders. Following that, investors will look ahead to the planned second meeting that is expected to bring more definite plans for the dealing with the Eurozone's fiscal issues.

As far as the U.S. economic calendar goes, if there's one report for investors to tune into, it is Thursday's first look at third quarter growth. After a lackluster 1.3% rate in the second quarter, and plenty of concern that conditions have continued to be sluggish, investors will be looking for some sign that things aren't as bad as they seem.

Also worth watching next week are the government's consumer confidence measure, durable goods orders, new home sales, initial unemployment claims, personal income and spending, and the University of Michigan's final October sentiment reading.

Earnings announcements will continue to ramp up next week and could provide a boost to the markets if they proceed as they have thus far. Among the major reports to look out for are Caterpillar, UBS, Deutsche Bank, 3M, Boeing, ConocoPhillips, Ford, Raytheon, Procter & Gamble, Chevron and Merck.

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