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By Jason Stipp and Jeremy Glaser | 04-05-2012 01:00 PM

Whodunit?

Morningstar markets investigator Jeremy Glaser sizes up the primary suspects behind this week's headlines.

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to The Friday Five. There were several mysteries in the market this week. So, whodunit? Morningstar markets editor Jeremy Glaser and our lead market investigator is here to offer some clues.

Thanks for joining me, Jeremy.

Jeremy Glaser: You're welcome, Jason. I really like mysteries that are easy to solve, and I think for most of these, we should have a good answer.

Stipp: So what five whodunit cases do you have for us?

Glaser: Well, this week, we're going to take a look at the Federal Reserve, at Spain, Bed Bath & Beyond, Yahoo, and finally, auto sales.

Stipp: If you looked at the market chart on Tuesday afternoon, you saw a very suspicious looking downward sloping line for the Dow, S&P, and some of the other indexes. Whodunit Jeremy?

Glaser: There's no doubt that the culprit was the Federal Reserve. They released the minutes of their most recent board meeting, and basically the market was hoping to see maybe signs that there was going to be some further quantitative easing, so-called QE3, and there just weren't any of those in the minutes.

I think that the Fed isn't going to be raising rates anytime sooner. They reiterated that pledge of keeping rates low into 2014. That didn't seem to be on the table to raise faster, but there wasn't a sign that they are going to go on with some new, big bond-buying program that will help push rates down.

It's interesting to hear the Fed talk about employment still being a major issue that they are worried about; the strength of the labor market is something they have a close eye on. And growth in general--they don't see the recovery as being so firmly entrenched that they need to start worrying about inflation and start worrying about too much growth. They are still worried about too little [growth]. I think that freaked the market out a little bit, too.

Stipp: So, Jeremy, I finally thought the coast was clear, at least for a little while, on the European front. But there was more hand-wringing this week over European issues. Who is the culprit this time?

Glaser: Europe might be more on spring break than they are on a permanent vacation from their sovereign debt woes. The culprit was Spain this week. They had a bond auction that I think most people thought was going to be pretty routine. Spain had been doing a lot better. There was a general amount of credibility around their new budget that would be able to bring some of those deficits under control, but that auction didn't quite go as planned. They ended up paying a much higher rate than expected. The investor interest just wasn't there.

I think this just shows that a lot of these underlying problems are really still there, that you have over 50% youth unemployment in Spain. You have horrible unemployment amongst the broader population. You have generally uncompetitive wages, and that really makes it difficult for Spain to dig itself out of that hole, particularly when they don't have the printing press just to kind of inflate their way out of the problem.

So, the same thing that we've seen play out in Greece and in other indebted countries might not be imminent in Spain, but it certainly shows that even though things are a little bit quiet, that mystery of when the sovereign debt crisis will actually come to a close remains quite open.

Stipp: In corporate news, Jeremy, we got some sales data from Bed Bath & Beyond. It looked pretty good. Who is responsible for those results?

Glaser: Well, I think there are probably a lot of people responsible, but a few areas are really driving the company. They had another quarter of great same-store sales, better than analysts expected and even a lot better than what their generally conservative management team expected as well.

I think part of it could be the housing market is coming back. People want to go buy new appliances, buy new bedding to maybe make their houses look a little bit better to sell, or they just bought a new house and they need to outfit it. I think that's a big factor. I think consumer spending generally going up, people feeling more free to spend, maybe there's some purchases that they have been putting off a while, they are now really going out to Bed Bath & Beyond and doing them.

Finally, I think the management team is doing a great job of having the right merchandise mix to get those consumers to open the wallet, and they are really keeping costs down, which is helping on the profitability front as well. So, I think those three [factors] certainly are contributing to Bed Bath & Beyond's great run here.

Now, the stock looks a little bit pricier right now. It's certainly not a bargain. But I think the fact that it's [reflecting] some strength in the housing market and the consumer market is really a good sign for the economy as a whole.

Stipp: Not sharing Bed Bath & Beyond's good fortune is a company in the tech sector, Yahoo. We heard the sound of cutbacks from Yahoo this week. Who is behind it, and what's the motivation?

Glaser: Well, I think it's clear that new CEO Scott Thompson is really responsible for these cuts. About 14% of the Yahoo workforce is going to be laid off in an effort to slim down the company a little bit and get it ready for the next strategic initiative, but what that initiative is, isn't really quite clear yet.

I think Yahoo is really going to have to make some big moves to get back to where it was even just a few years ago. They continue to lose market share, they continue to lose relevance on the Internet to some newer and faster-growing companies that are out there, like the Facebooks and Googles of the world.

I think it's certainly possible to turn the company around. But just cutting workers is certainly not going to be the way to do it. Shrinking your way to success is a strategy that often doesn't work, and I think that they're really going to have to come up with something more beyond this in order to really start turning Yahoo around and to really make it a compelling story again.

Stipp: Lastly, Jeremy, we got reports this week that showed auto sales were really revving up. Who is behind the wheel here?

Glaser: Apparently everybody. Auto sales just did great in March. People really were out there buying new cars. This is something that we've talked about a lot, that auto sales have really been lagging behind. Based on the number of cars on the road and how old they've been, our economist Bob Johnson has mentioned many times this rubber band effect that people have been putting off buying new cars for so long, and they just can't do that anymore. So, I think part of it is people finally feeling comfortable enough with their finances, or being able to get financing, they're going and buying the cars. I think part of it is a fuel-economy story--as gas prices continue to rise, people want to get rid of their old SUV and buy a more fuel-efficient car; I think that probably has a lot to do with why sales are going up so much as well.

And a nice thing for stock investors is that we think that both General Motors and Ford are both 5-star stocks right now; they both look attractive. So even with these big sales numbers coming in, we still think there's more runway for growth there and that their stocks look undervalued.

Stipp: Jeremy, there's no mystery about who's done a good job on The Friday Five. Thanks for joining me.

Glaser: You're welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.

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