U.S. Weekly Wrap-Up

Markets were showing strength this week on the Fed rate cut, mixed economic data and heavy earnings reports. The jury remained out on recession, as speakers such as the BoE's Blanchflower claimed with certainty that the US indeed was in a recession, whilst job numbers came in slightly better than expected and GDP numers showed slightly positive annualized growth. However it became increasingly clear with the comments from the White House that the slowdown is here and the economy is 'not as robust as it should be', but not yet in a recession.

Indices were drifting lower early in the week after April consumer confidence data confirmed that economic variables are further weakening Americans' sentiment. While consumer confidence data did beat expectations, it remained within sight of five-year lows, while one-year inflation expectations rose considerably. Meanwhile, the S&P/Case Shiller home-price index dropped to a five-year low.

Earnings announcements continued to play a key role early in the week, as the market absorbed reports from a lot of big name stocks. There was again no clear trend in earnings as positive and negative reports seemed to pair off: Visa missed earnings estimates, but MasterCard beat handily the next day; Las Vegas Sands came in well below expectations, while competitor Wynn Resorts had solid results; Exxon fell after failing to meet the consensus, while Chevron moved higher after beating earnings expectations.

Financials remained a bit of a laggard early in the week after Morgan Stanley cut estimates on several firms and suggested using recent strength as a selling opportunity. Some rotation into financials and tech started on Thursday, however, as US dollar strengthening took a bite out of commodities and related stocks. Spot gold ended the week off 3.3%, while a $4 rally on Friday brought crude futures back to flat on the week.

A positive equity tone took hold throughout Thursday's trading as investors buoyed indices ahead of the FOMC announcement. After cutting rates by 25 basis points to 2%, the Fed changed its balance of risks statement, previously partial to downside growth, instead saying that its months-long easing campaign "should help promote moderate growth over time and mitigate risks to economic activity." Afterward, Pimco's Bill Gross noted that he believes that the Fed is now in neutral and will remain at 2% "for a long time."

Equities rose considerably on Friday morning, extending Thursday's strong gains as markets digested the Fed rate cut and an April non-farm payroll report that proved better than expected. US job losses narrowed in April, dropping by only 20, 000, far fewer than the 75,000 anticipated decline. Also on Friday, the Fed took further liquidity action, boosting its biweekly TAF sales of cash to banks by 50% to $75B and expanded the collateral it takes from bond dealers through loans of Treasury securities. But indices had fallen below opening levels in morning trading, and hit lows after S&P cut Countrywide's debt rating to junk.

Equities staged a small comeback late Friday, and for the week, the DJIA gained 1.5%, Nasdaq was up 2.8%, and the S&P500 rose 1.7%.

Friday afternoon, Microsoft was reportedly holding last-ditch talks with Yahoo on after letting the previous offer expire Sunday, with Microsoft seeming to lean toward a hostile bid or potential increase in the offer price for Yahoo. Shares of YHOO were rising while MSFT were declining slightly.

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