JP Morgan Chase & Co. (JPM) announced additional losses of $1.5 billion in July and then followed in the footsteps of Citigroup Inc. (C), Merrill Lynch & Co. Inc. (MER), UBS, and others, by agreeing to settle with regulators for billions (plus fines) over the sale of risky securities.  In non-financial news, Wal-Mart Stores Inc. (WMT) bucked the negative retail trend by reporting a 17% increase in quarterly profits as strong international sales helped overcome the domestic slowdown.  Meanwhile, Macy’s Inc. (M) issued a warning that earnings for the year will not meet prior expectations and J.C. Penney Co. Inc. (JCP) and Abercrombie & Fitch Co. (ANF) missed analysts’ outlooks, as well.  Despite the rise in commodity prices, food services company Sysco Corp. (SYY) [not to be confused with techie Cisco Systems Inc. (CSCO)] posted a 10% gain in quarterly earnings.  Given the ongoing economic concerns (see below) and the “challenges” faced by financial-services companies and retailers, congressional Democrats are pushing for another stimulus package, a move with political implications during the presidential election year.

Looking at the fixed income sector, bonds moved higher late in the week on a stronger dollar and the yield on the benchmark 10-year fell below the 3.90% level.  While pressures on financial stocks (Citi, JP Morgan, or Bank of America Corp. (BAC)) propelled the Dow Jones Industrial Average lower at mid-week, other equity indexes held up quite nicely.  As energy prices keep falling, some investors believe that corporations will enjoy improved expense outlooks in the months to come, causing certain share prices to react accordingly.  Many companies already have begun making helpful adjustments.

Economically Speaking

While talks of the dreaded “R” word come far less frequently these days (although there’s still some concern about the “S” world – stagflation), economists remain pessimistic about the rest of the year (and beyond). Some economists previously believed the country would experience a nice rebound by the second half of 2008, though the latest economic projections call for 1.2% growth in the third quarter and a feeble 0.3% increase in the fourth.

A recent CEO survey showed that 90% of top execs polled considered domestic conditions to be “fair” or “poor.”  The Fed Beige Book warned that the overseas demand for “Made in America” goods was beginning to soften, and manufacturers were growing more concerned that the recent strong international activity would no longer help cushion the domestic weakness.  In fact, the European Union (EU) economies actually fell by 0.2% in the second quarter and consumer confidence dropped to its lowest level in more than five years.  Perhaps the European Central Bank can hold off on those rate hikes after all.

Even former Fed Chief Alan Greenspan (remember him?) thinks the housing sector will not show signs of a turnaround until the first half of 2009.  Greenspan also criticized the Bush Administration over its handling of the Fannie Mae (FNM) and Freddie Mac (FRE) debacles, perhaps attempting to shift blame away from himself for his role in the “lax” regulatory oversight of housing and the mortgage industry.

Looking inside the weekly numbers, retail sales dropped in July as cautious consumers stayed away from the malls and seemed to be waiting for the absolute last minute for any back-to-school shopping needs.  Even removing the weak auto sales data from the equation, retailers suffered their worst showing in five months.

Meanwhile, the July CPI surged by its fastest pace in 17 years and the core statistic (excluding the volatile food and energy components) increased slightly more than expected, as well.  However, since average gas prices have declined by more than 20 cents a gallon in the past few weeks, some analysts expect that the August (or possibly September or October) CPI release will look far better (unless, of course, a situation like the Russia/Georgia conflict heats up or a sizable hurricane wreaks havoc on oil platforms in the Gulf of Mexico).

Weekly Economic Calendar

Source: Although Oil Prices Have Declined, the Energy Sector Remains a Global Investing Wild Card

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