Saturday, September 27, 2008

Weekly Rewind - Week 39 (09/26/08)

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In this week's theatrical version of political "Deal or No Deal?" -- equity indices retraced over half of their prior gains as Treasury Secretary Paulson's TARP plan was thoroughly dissected up on the Hill (Bloomberg - Agreement Near).

In spite of the large give-back, the markets were generally able to hold their ground considering the downward revision to GDP, and FDIC seizure of Washington Mutual and subsequent asset resale to JPMorgan Chase (Business Week - Revision Raises Recession Risk; WSJ - WaMu is Seized). In the end, the S&P500 (SPY) closed down another -2.6%, while last week's winners, the Russell 2000 and Emerging Markets, fell the hardest (IWM -5.6%/EEM -7.0%).

Sectorwise, only the Consumer Staples arena was able to hold its ground (XLP +0.0%), while Materials and others reversed dramatically (XLB -7.9%). While there was little place to hide from a Style perspective, for spread traders the Value quadrants managed to outperform Growth by a wide margin (PWP -3.3 vs. PWJ -6.3%). Meanwhile, Commodities saw a small comeback on US Dollar weakness (DBC +2.2%/ UUP -0.8%).

Week 40 of 2008 brings a new month, a new quarter, and a busy economic calendar, as follows:

  • Monday - Personal Income & Spending
  • Tuesday - Chicago PMI & Consumer Confidence
  • Wednesday - Automotive Sales; ADP; Construction Spending; ISM Manufacturing & Crude Inventories
  • Thursday - Initial Claims & Factory Orders
  • Friday - Payroll Reports & ISM Services

Although most asset classes look technically neutral within the wide range of recent moves, with the VIX options volatility measure so extended above its recent average (+13.7%), there remains the possibility of strong moves higher (again) on the right news flow -- read DEAL! On the other hand... in this market there are the quick and the disillusioned.

Traders will undoubtedly be closely monitoring the progress and final form of the "rescue" plan (Add: Calculated Risk - Pelosi Summary of Final Draft; NY Times - Agreement Reached), how the market behaves after its passage (if I may be so presumptive), and the outcome of Wachovia's reported talks with Citigroup (Bloomberg - Early Takeover Talks).

A glossary of Weekly Rewind terms and statistics has been posted here for your reference. Enjoy the weekend.

Never Investment Advice

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