Weekly Wrap
Last Update: 14-Sep-07 17:33 ET
The stock market spent most of this past week talking about what will happen next week. That didn't prevent a more upbeat underlying tone from developing. The indices showed good resilience all week and the only day the S&P was down was on Monday, and then by just two points.
The top focus remains the Fed policy meeting on Tuesday. There remains much debate as to whether the Fed will cut the fed funds rate by 1/4% or by 1/2%. This is despite the fact that recent statements from Fed officials have tended to stress economic strengths and reflect no sign of panic. There is a distinct possibility that the statement and Fed action could disappoint the stock market.
That is, at least in theory. It is also noteworthy that the stock market has tended to move higher after recent policy statements, even when they were disappointing. The stock market rise this week may be based as much on the belief that the risks of the Wall Street liquidity problems turning into a full-blown credit crunch are diminishing over time.
It was a light week for corporate news. Intel raised its current quarter revenue guidance on Monday. Surprisingly, that had little broad impact even though worldwide demand for semiconductors is obviously a good economic sign. Then on Tuesday, McDonald's announced strong August sales. Big Macs had more impact than chips as that news helped fuel a 20 point gain in the S&P 500 index.
McDonald's gave the market another boost when it announced after the close on Wednesday that it was increasing its dividend by 50%. That, along with a dividend increase from Microsoft, helped the S&P gain 12 points on Thursday.
Without news from McDonald's, the market was flat on Monday, Wednesday, and Friday. On Friday the only economic reports of note were released. August retail sales were up 0.3%. That was a bit less than the expected 0.5% increase, but the July gain was revised upward from 0.3% to 0.5%. August industrial production was reported up 0.2%. This was a tad less then an expected 0.3% increase, but July on this time series was also revised higher, from +0.3% to +0.5%. These two releases reflect sluggish economic growth, but not recession.
Other key news this week was that OPEC raised their production ceiling by 500,000 barrels a day. That didn't help keep oil prices down, as oil closed at $79.10 a barrel after briefly breaching $80.
The 10-year note yield rose from 4.37% last week to close this week at 4.46%.
It was a good week for the stock market. Sentiment seemed to improve. Whether these gains are sustainable, however, depends on the reaction to the Fed statement Tuesday. A very volatile market reaction is very possible.
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