Weekly update - Jan 24, 2010

from the weIMG newsletter

Well, nothing will take the wind out of a bull market's sails like an announcement from the President that banks will no longer be permitted to use their own capital to trade, or invest in hedge funds or private equity funds. They will continue to be able to trade and operate funds for the benefit of clients, but not themselves. The broad equity market index, S&P500, lost 5.1%, from a 15-month high, in three days of trading since the plan was announced.

Another debate sparked in Washington this week regarding a nomination that until recently seemed all but certain. Current Fed Chairman Ben Bernanke has been nominated by President Obama for a second term, but two Senate Democrats announced this week that they will oppose the confirmation. Senators Dodd (Democrat, Connecticut) and Gregg (Republican, New Hampshire), both of whom are on the Senate Banking Committee, came out over the weekend to voice their support and predict Bernanke's confirmation.

Kinda makes you wonder if the financial capital is still New York, or if it has moved southwest about 200 miles to Washington D.C.

Stocks:
As mentioned above, stocks took a beating this week. Equities rose on strong earnings reports Monday and Tuesday but then fell off a cliff after the announcement of the regulatory plans. On the week the S&P500 fell 3.9%, the Dow shed 4.1%, and the Nasdaq dropped 3.6%.

In global economic news - Chinese authorities indicated Wednesday that they will begin to slow lending in order to contain runaway economic growth. This is bad news for global growth as China has been the growth engine pulling the rest of the world out of the recession.

Some notable earnings news:
A rare disappointment from Google sent its shares tumbling. Earnings beat estimates but investors were disappointed with the outlook. GOOG lost 5.7% on Friday, and 5.1% on the week.
GE profit beat estimates boosting the stock to open Friday about 4% higher than Thursday's close, but it could still not escape the general selloff and lost 2% on the week.
JPMorgan also beat estimates, reporting EPS of $0.74 versus consensus of $0.61, but the stock nonetheless fell 10% on the week.
See article #4 for an overview of bank earnings.

Bonds:
Risk aversion pulled investors away from equities and into bonds, sending yields lower across the board.
End of week bond yields:
3 Month yield = 0.02%, down 2 bps from last week.
2 Year yield = 0.79%, down 7 bps from last week.
5 Year yield = 2.34%, down 8 bps from last week.
10 Year yield = 3.61%, down 7 bps from last week.
30 Year yield = 4.53%, down 5 bps from last week.

What to look for next week:
9am Monday - Existing Home Sales
9am Tuesday - Consumer Confidence
1:15pm Wednesday - Fed Funds Rate Announcement
7:30am Thursday - Durable Goods Orders
7:30am Friday - Q3 GDP Final Revision