Welcome to my Friday! We have made it through another work week. I don't know about you, but I am definitely ready for the weekend and no appointments or meetings.
As those of you that read this blog often know, I have currently been ordered on bed rest by my doctor in order to avoid going into the hospital. So personally I am not doing much more than staying close to home and spending time with my four legged children. Luckily, I am not having cabin fever yet, mainly because I have very little energy and wear out very quickly right now.
The big news today, in fact the whole week, is the New York Stock Exchange and the price of crude oil. It's somewhat difficult to know where to begin to describe the market action this week, because the market itself was literally all over the map. Once again, the financial sector and oil prices were the primary swing factors. Government sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE) were the main source of volatility for the market, as speculation ran rampant that they were destined for a government bailout despite repeated assurances from government officials and their regulator that they are adequately capitalized.
The concerns hit a crescendo Friday when The New York Times ran a piece indicating the executive branch has been discussing a plan for the government to take over either one or both of them if conditions worsened. The supposition was that they would be placed in conservatorship, which would ultimately leave their stocks worth little or nothing. At their lows for the week, shares of Fannie Mae and Freddie Mac were down 64% and 73%, respectively, from their closing prices at the end of last week! Late in Friday's session said the Fed chairman told the GSEs they would be eligible to borrow from the Fed's discount window helped the stocks, and the broader market, make up a good bit of the considerable ground lost Friday. A full-fledged recovery was soon beaten back by a subsequent report that said the Fed declined comment on whether the discount window was open.
It was that kind of week frankly. There was so much back and forth on rumors and clarifications that the stock market resembled a roller coaster and not one you get off with that exhilarating feeling. Rather, it was more like a roller coaster that left you feeling dazed and confused. Oil prices certainly greased the ride. They experienced wide swings, too, touching $135.14 at their low Tuesday before rallying back to a new record high of $147.27 Friday. They eventually settled the week just below $145 or little changed from their close last Friday. Various reports (some confirmed and others not) discussing military posturing on the part of Iran and Israel, coupled with ongoing supply concerns, were at the heart of this week's trading action in the energy pits.
Elsewhere, there were plenty of corporate headlines outside the financial sector to digest. Dow Chemical (DOW) announced its intent to acquire Rohm & Haas (ROH) for $78 per share in cash. That price marked a 74% premium for ROH shareholders based on the stock's closing price the day before the deal was announced. Meanwhile, the latest turn in the InBev-Anheuser Busch (BUD) battle had the two sides reportedly close to striking a friendly deal at $70 per share for BUD shareholders. Wal-Mart (WMT) led a batch of retailers in reporting better-than-expected same-store sales results for June that were boosted by the spending of fiscal stimulus checks. Fellow Dow components Alcoa (AA) and General Electric (GE) officially kicked off the second quarter earnings reporting season with in-line profit reports. Neither company moved the market much, though, since it was pre-occupied with the Fannie Mae-Freddie Mac saga.
In the same vein, a smattering of economic reports failed to right the market even though they were generally better than expected. Pending home sales for May slipped 4.7% from April. That was a bit worse than the consensus estimate, but the actual level was fairly close to the level seen in December, which supported the notion that signs of stabilization in the depressed housing market are starting to emerge. Separately, weekly initial claims dropped 58K to 346K, well below the consensus estimate of 395K. The two-week average of 375K put claims at a level that was witnessed in mid-March, so it can be said the claims level is fairly stable.
The most constructive piece of data was the trade balance for May, and specifically the real trade deficit, which fell to $43.6 billion from $46.7 billion in April. The real trade deficit in April already left net exports on track to contribute 1.2% to real GDP in the second quarter. The continued narrowing of the real trade deficit will add to that contribution and effectively offset the decline in residential construction.
The real trade deficit in May leaves second quarter real GDP on track to increase at least 2.5%. That is much stronger than many pundits have been proclaiming, but against the backdrop of what happened with Fannie Mae and Freddie Mac, and the financial sector as a whole, the good economic news didn't matter to the market.
The economic data in the coming week isn't likely to be considered irrelevant to the trading action. There are key inflation reports in the form of the PPI and CPI Indexes, as well as the latest data on retail sales, housing starts and industrial production. In fact, there will be a number of key happenings in the coming week. The earnings reporting will kick up several notches with reports from a number of major financial and technology companies; the minutes from the June 25 FOMC meeting will be released; and Fed Chairman Bernanke is slated to present his semi-annual testimony before Senate and House committees. There will be no rest for the weary (or the dazed and confused), because the market's roller coaster ride begins anew Monday morning.
On a personal note, I received the new lens I purchased for my SLR camera by UPS today. I am so excited to get my new macro lens because I love doing close up shots whether people or objects. Now if I just had enough energy to get out and shoot a few hundred shots of something. Even better would be going on a trip to somewhere new and taking a ton of pictures. Now I will warn everyone that I travel best alone. I tend to spend at least half my time taking pictures which I have found tends to irritate others who do not enjoy taking pictures or movies. Plus traveling alone allows me to go on my own pace as my energy and health level dictates.
Otherwise, it has been a very low key day. So how was your day? Did you do something memorable or exciting? Remember to live your life and enjoy it while you're here. We only get one shot at this life.
Here's hoping you a safe and great weekend. Wishing you health, hope and happiness.
Big bear hug,