Stocks finish the day and the week flat (the SP500 was nearly perfectly unchanged W/W). Heading into the weekend, the SP500 is back to the levels immediately prior to the post-Fed surge (recall the Fed decision hit on Wed 11/3 and the SP ripped ~2% on 11/4; we are back to those 11/3 levels). We have spent the last couple weeks consolidating/digesting the recent rally and still remain up ~14% from 9/1 (despite the sluggish action of the last two weeks, the SP500 is only off ~2.2% from its highs).
There were three negatives that hit equities from their highs these past two weeks although investors have now received clarity on all these issues:
1) Ireland – the country’s CDS spreads have tightened ~100bp from their wides as press reports indicate that some kind of EU/IMF bailout is in the works w/an announcement due next week. While confirmation of an aid activation will not be a panacea (note that Greek spreads are at all time wides as of Fri despite having been bailed out months ago) and there are still worries around other Eurozone sovereigns (specifically Portugal), a bailout should help calm tensions.
2) China – the Shanghai index pulled back nearly 10% from its highs in just the last 1.5 weeks, w/steep declines during some single sessions. The big fear has been that officials would implement aggressive tightening measures to clamp down on inflation. However, by Fri afternoon some of those concerns abated, as the country pushed through another 50bp bank RRR (the 5th of the year) and not a more severe lending rate increase. While officials have talked about focusing hard on keeping a lid on surging food costs, there are several non-monetary measures it could pursue to achieve this goal (inc. releasing some of its strategic reserve stocks). Keep in mind too that the government only feels comfortable to embark down this road b/c of its confidence in the country’s growth outlook and also that it won’t imperil the domestic jobs market (one of the most interesting anecdotes from the new George W Bush book was his exchange w/Chinese President Hu Jintao in which Hu stated that his greatest worry was creating 25MM jobs each year.
3) Tech Spending – the CSCO earnings from back on Nov 10 raised several concerns for tech investors, although the reports released subsequently have calmed some of those fears. Comments from NTAP, DELL, MOT, and others, have all suggested that government spending hasn’t seen the precipitous decline that J Chambers spoke to.