Market Digest – Week Ending 11/23
The shortened Thanksgiving week produced the second largest gain of the year for the S&P 500. Higher existing home sales drove buying on Monday and a seemingly strong start to Black Friday provided a boost to end the week. German business confidence also gained. More difficult to quantify, but probably most important, was a reduction in fear surrounding the Fiscal Cliff. President Obama expressed confidence on a budget agreement after meeting with senior Democrats and Republicans last Friday. Treasuries fell and the price of gold rose.
S&P 500: 1,409 (+3.6%)
MSCI EAFE: (+4.7%)
US 10 Year Treasury Yield: 1.69% (+0.11%)
Gold: $1,751 (+2.2%)
USD/EUR: $1.297 (+1.8%)
- Monday – Intel CEO Paul Otellini unexpectedly decides to retire early and step down in May.
- Monday – Sales of previously owned homes rose 2.1% in October, beating expectations.
- Monday – Moody’s downgraded France’s debt rating from Aaa to Aa1.
- Tuesday – Hewlett-Packard announced an $8.8 billion write down on its 2011 Autonomy acquisition and said an internal investigation of the purchase revealed “serious accounting improprieties” and “outright misrepresentations”. Shares fell 12%.
- Wednesday – Israel and Hamas agree to a ceasefire after eight days of increased hostilities.
- Wednesday – Federal prosecutors charged former SAC hedge fund manager Matthew Martoma with insider trading and set the stage to investigate Stephen A. Cohen, one of Wall Street’s most successful and prominent investors.
- Friday – The Ifo Institute survey of German business confidence unexpectedly rose in October.
- Friday – Tens of thousands of Egyptians took to the streets to protest or support sweeping new powers President Mohammed Morsi granted himself a day earlier.
A few comments:
Fiscal Cliff – Irrational fears of a meltdown from the Fiscal Cliff abated this week, and stocks rose. We remain doubtful much will be accomplished before New Year’s Day, meaning the Cliff will lead to increased volatility in December. A solution could provide a source of upside early in 2013.
HP – Just one year after closing the deal, the iconic technology company announced a massive write-off related to its Autonomy acquisition. It is another sad chapter in the decline of a once-great company and a reminder of the risks involved in single stock concentration. The company is now worth $25 billion, which is probably less than the breakup value of its profitable divisions. HP used to be too big to be a private equity target, but maybe not anymore.
Fraud – It looks increasingly likely that federal prosecutors will charge Stephen Cohen with insider trading. If he is convicted and does time in prison, it would be a big deal. Like steroids in sports, insider trading happens a lot and is rarely caught. But like a Roger Clemens or a Lance Armstrong, if Cohen goes down, it will cause others to reconsider their actions. The government is finally showing signs of using technology more efficiently to catch illicit behavior and market participants should beware. Ultimately, it may be a good thing.
We wish you a peaceful and enjoyable Thanksgiving weekend.