We’d be remiss if we didn’t quote Gotham’s eternal guardian Harvey Dent from time-to-time. “The night is darkest just before the dawn…” and after 4 straight down days for stocks to start out last week, investors were hoping “that dawn is coming.” Salvation came Friday in the form of a 217 point rally in the Dow Jones Industrial Average thanks to the much-anticipated government employment report. The Labor Department announced that 163,000 non-farm jobs were added in July, beating low expectations (100,000 jobs), but the unemployment rate ticked up from 8.2% to 8.3% because of a rise in citizens “actively seeking work.” That may not be huge compared to the 200,000+ added monthly at the beginning of the year, but it beats the last few dismal months of <;100,000 jobs.
Markets see a big positive in the improved job growth as it should lead to increased consumer spending, which makes up 70% of America’s GDP. People need to be spending money on Slap-Chops and Magic Bullets for the economy to grow, however if there aren’t as many people working then incomes are lower and people spend less money.
So what happened those first 4 red days of the week? Despite solid US econ data, the focus turned to some brutal financial headlines and a lack of progress from Central Banks across the globe. The Federal Reserve’s policy-setting meeting revealed that Chairman Ben Bernanke isn’t pursuing stimulus measures yet. And across the pond, Euro Central Bank President Mario Draghi also disappointed after promising he’d “do anything” to squash their debt crisis, but then settled for a a status quo policy (buying struggling nations‘ bonds? Been there, done that). When the Central Bank buys Spanish and Italian bonds, it reduces their borrowing costs, but this is a transitory solution and did not convince skeptical investors that the two PIIGS countries will continue to have bond market access at reasonable interest rates, pay its bills, and avoid a default.
The gut-punching drama came courtesy of banks – Deutsche Bank’s equity (another word for “stock”) research department downgraded its rating of JPMorgan stock from “Buy” to “Hold,” advising clients not to buy any more shares of JPM and to hang on to the ones they have, following the firm’s $5+ Billion loss this past spring. This may be the first of many investment firms to downgrade JPM’s investment worth. Deutsche then reported earnings that were half of last year’s and will cut 1,900 jobs to appease shareholders. Cutting these jobs will save DB 350 million euros/year. People who own DB stock want to see the company doing whatever it can to save money and improve profits and sometimes that means firing workers who aren’t bringing in enough dough to justify their high salaries. In nearby Zurich, after profits dropped 58%, UBS pointed a not-so-neutral Swiss finger at the NASDAQ stock exchange, whose botched Facebook IPO cost UBS $350 Million when trade orders wouldn’t go through.
The biggest loser though was Knight Capital, a brokerage firm whose computer glitch caused chaos on Wall Street Wednesday that cost the firm a $400 Million bill and its regal title of “Sir.” In recent years all of stock trading has become completely digitalized and even the slightest half second glitch can completely destroy trading because millions and millions of stocks are being traded every second. This happened in Facebook’s IPO, and now it cost Knight Capital an amount equal to 4 years worth of profits.
Investors were so enamored with the bar fight going on between banks that they ignored some not-too-shabby econ data: The S&P/Case-Shiller home price index showed prices rose in May for the 2nd straight month. This index measuring the average value of homes in America is a major factor for consumer confidence, since the wealth of most Americans lies in the value of their humble abodes; investors believe this increase may lead to more spending from households and more profits for American companies. Weekly jobless claims also up-ticked less than forecast, but everyone who freakin’ loves jobs data is more focused on the mother of all job reports – Friday’s official Non-Farm Payrolls numbers for July.
The Dow Jones Industrial Average inched up .2% for the week and is up 7% year to date, while the S&P 500 climbed .4% this week and is up 10.6% in 2012
Links Worth Snacking On:
- Bloomberg – That Olympics spoiler-alert scheduling is kind of annoying – but NBC’s making plenty of cash out of it
- Forbes – What Batman and Wayne Enterprises teaches us about leadership (“Why do we fall Bruce? To learn to pick ourselves back up…”)
- WSJ – Knight Capital’s trading glitch smacked the company’s value – so if you’ve got some pocket change and would like to buy the broken brokerage firm, what would you get?
- NY Times – Goldman Sachs investing in the New York’s city jail program
- Charts – Visualizing how UBS lost $350 Million on Facebook‘s botched IPO
- Monday – Earnings: Chesapeake Energy
- Tuesday – June Job Openings, June Consumer Credit, Earnings: Walt Disney, Molson Coors, Office Depot
- Wednesday – 2nd Quarter Labor Productivity, Earnings: Macy’s, Ralph Lauren, News Corp.
- Thursday – Weekly Jobless Claims, June US Trade Deficit, Earnings: Kohl’s
- Friday – July Federal Budget, Earnings: J.C. Penney
© 2012 MarketSnacks