Macro

The 10-year Treasury yield climbed sharply as strong economic data and mounting expectations for Fed rate hikes drove a bond market selloff, part of what traders called a mini bond-market rout. Mortgage rates rose in tandem, cooling some refinancing activity. The move presaged the Fed's first hike in the cycle the following month.

The finance sector absorbed a sharp regulatory blow this month as the Spitzer lawsuit against Marsh & McLennan over bid-rigging and kickbacks cast a shadow over industry practices, reinforcing scrutiny on broker compensation and transparency. Despite this, sentiment edged up as the market differentiated between isolated misconduct and broader systemic risk, viewing the enforcement action as containment rather than a sign of unchecked contagion. The sector’s resilience reflects confidence that oversight is functioning, not collapsing.

Exelon Corp. is acquiring Public Service Enterprise Group (PSEG) for $12.8 billion in stock, creating the largest U.S. power generator with 7 million electric and 2 million gas customers across Illinois, New Jersey, and Pennsylvania. The deal, pending regulatory approvals, aims for $400 million in first-year savings and faces scrutiny from federal and state agencies, particularly in New Jersey. Market implications include increased consolidation pressure and enhanced operational efficiencies, boosting earnings predictability.

The Exelon-PSEG merger dominates sector sentiment, signaling continued consolidation among large U.S. utilities and boosting investor confidence in scale and regulatory predictability. While the $12.8B deal elevates near-term optimism, broader sector performance remains anchored by stable earnings and regulated returns, muting more aggressive market re-rating. Sentiment thus edges only slightly higher, reflecting confidence in strategic scale without material shifts in regulatory or rate outlooks.

Cingular Wireless has acquired AT&T Wireless for $41 billion in cash, defeating rival bidder Vodafone. The deal creates the largest U.S. mobile carrier with 46 million customers, surpassing Verizon, and signals increased consolidation in the telecom sector with potential implications for competition and market dynamics.

Recovery firmed as the economy strengthened, an election-year ad market returned and Google's IPO launched the digital-ad era. Turning positive.

Merck & Co. voluntarily pulled its arthritis drug Vioxx from the global market due to an increased risk of heart attacks and strokes after 18 months of use, affecting 2 million patients. The FDA will review similar drugs Celebrex and Bextra, while investors may reassess pharmaceutical sector risks tied to drug safety and regulatory scrutiny.

A solid year turned dark in September when Merck withdrew Vioxx over heart-attack and stroke risk, wiping out ~$30B of value and opening a liability wave that cast a safety-scrutiny cloud over the whole industry.

US Airways Group, the nation's seventh-largest carrier, filed for Chapter 11 protection on September 12, 2004, less than 18 months after exiting its first bankruptcy. The filing followed the airline's failure to secure roughly $800 million in annual labor concessions amid a spike in jet-fuel prices and weak business travel. It underscored the accelerating collapse of the legacy hub-and-spoke model against lower-cost competitors.

A global industrial upcycle led by China powered strong capital-goods orders all year; the Fed's mid-year hikes and $50 oil were only modest headwinds against booming demand.

Google's shares rose 18% on their Nasdaq debut at $100.34, following a Dutch auction IPO priced at $85, raising $1.67 billion. Founders Brin and Page became paper billionaires, and the company achieved a $23.1 billion valuation, signaling strong market confidence despite regulatory scrutiny and Wall Street skepticism. The unconventional offering bypassed traditional underwriting, attracting retail and institutional investors post-launch.

A solid growth year under still-cheap capital; Google's August Dutch-auction IPO rekindled tech optimism (and Facebook was quietly founded in February).

Kmart, led by Edward Lampert, is acquiring Sears in an $11 billion deal to create Sears Holdings, forming the third-largest U.S. retailer. The merger aims to cut costs by $500 million annually and enhance competitiveness against Walmart and Home Depot, with combined annual revenues of $55 billion. Market reaction is positive, though analysts remain cautious due to both companies' past struggles.

The housing and consumer boom continued on low rates and strong payrolls, driving robust auto and discretionary spending, with $50 oil only a mild late-year headwind.

Major oil companies reported sharply higher full-year profits as crude prices climbed from the mid-$30s to above $50 a barrel over the course of 2004. Strong energy-sector earnings helped support broader stock market gains even as high fuel costs weighed on consumers. The results underscored the shifting balance of global demand growth, led by China.

Surging demand and the Yukos supply disruption drove crude past $50 for the first time, and the majors posted blockbuster profits; the launch of the great 2000s oil boom, and owners felt it.

Home sales and prices continued climbing to records across much of the US, supported by low mortgage rates and rapid growth in adjustable-rate and lower-documentation subprime lending. Homebuilder stocks and mortgage lenders posted strong gains as originations surged. The lending practices of this period would later be identified as key contributors to the subsequent housing bust.

The housing boom accelerated as adjustable-rate and subprime lending exploded and prices soared; the Fed's first hikes in June barely dented conditions since rates stayed low, delivering peak euphoria by year-end.

The commodity supercycle ran full tilt with voracious Chinese demand driving copper and base metals to multi-year highs, oil past $50, and gold near $450, delivering surging revenue to materials owners.

President Bush announced a long-term space exploration vision to return Americans to the Moon by 2015 and eventually reach Mars, with NASA receiving $1 billion in new funding and $11 billion reallocated from existing programs. The plan involves retiring the space shuttle by 2010, building a Crew Exploration Vehicle, and establishing a lunar base as a stepping stone for deeper space missions, though critics question its high cost amid budget deficits. The initiative signals major shifts in NASA's focus and could drive increased public-private and international collaboration in space.

Bush re-elected, war spending continuity