Financial Market Update
StrategicPoint of View®
April 26, 2010
Welcome to the StrategicPoint of View -- a market and economic overview of what occurred last week, what's up for this week, and our commentary on the economy and current market activity in general for “Making Money” listeners.
LAST WEEK
Housing markets got a lift this past week, as existing home sales rose 6.8% and new home sales jumped 27%. Leading economic indicators increased sharply, core producer prices were almost steady, but durable good orders disappointed, falling a surprising 1.3%, although much of the decrease was attributed to a decline in airline orders. Earnings were on a roll with 85% of companies exceeding expectations.
S&P 500: 1217 (up 2.1% for the week and up 9.15% on the year)
Dow: 11,204 (up 1.68% for the week and up 7.44% on the year)
NASDAQ: 2530 (up 1.98% for the week and up 11.50% on the year)
10-year: 3.81% (from 3.77% last week)
Crude Oil (June): $85.20 (from $82.92 last week)
Gold (June): $1,154 (from $1,137 last week)
USD/Euro: $1.3380 (from $1.3496 last week)
THIS WEEK
Economic news will be fairly benign, at least until Friday, when we get the first estimate for Q1 Gross Domestic Product. Consensus figures indicate a 3.2% increase. An upside surprise is more likely than a downside disappointment. It will be another big week for earnings news with Texas Instruments, Caterpillar, 3M, UPS, Ford and Newmont Mining reporting early in the week.
COMMENTARY
No one can stop this bull market, or so it seemed this past week. The Dow was up for the eighth straight week – performance not seen since 2004.
For a day or so, we thought the fraud allegations against Goldman Sachs might be the excuse for the long awaited pullback in stocks. But Goldman concerns were brushed off by the broader markets. Even Greece’s acknowledgement on Friday that it will seek roughly $60 billion in aid from the European Union and IMF failed to derail investor enthusiasm.
We can attribute some of the incessant gain to corporate profits. So far, the first-quarter reporting period has been strong, with 85% of companies in the S&P 500 beating earnings expectations. Apple was a stellar performer this past week – as unstoppable as the bull market itself.
However, positive readings did not always translate into an increase in stock prices. Microsoft posted a higher quarterly profit that surpassed forecasts but fell over 1% on the news. Amazon.com recorded earnings that jumped 68% from a year earlier, surpassing forecasts, on higher sales. Yet, it dropped Friday by 4%.
Barron’s cover story this week (“Be Very Careful”) focused on its semi annual Big Money poll, a survey of mostly bullish money managers. Even this crowd was only mildly enthusiastic about markets gains for the rest of the year. (46% of money managers polled feel bullish or very bullish, while 38% are neutral and 16% bearish.) And the collective anticipated gains for the Dow over the next year are a modest 4%.
That does not mean that the markets will lapse into complacency. Although volatility has been wrung out of the markets for the last few months, modest growth will likely be earned through fits and starts. Starts we like; fits we don’t.
What could turn the markets negative isn’t openly evident today, however. Few can think of a really good reason to press the pause button right now, although risk factors abound. Rising interest rates later this year, increased taxes in 2011, a spike in oil prices, escalating European debt troubles – all circulate as “what if” scenarios. But for now, investors are feeling pretty confident. Inflation is tame. The Federal Reserve is deferential to low interest rates. And recovery continues to grind forward. “Why worry?” is the mantra.
Picture a see-saw with a big, fat bull on one side and a little bear dangling in the air on the other. The weight of the bull controls the movement of the see saw for now. The bear wants to come down, but can’t until the bull pushes off. That may happen. (Even in kindergarten the bull(ies) let their classmates go at the recess bell.) Keep in mind that we are talking about a see-saw and not a long slide. The playground can create some thrills and disappointments, but if you play carefully, you should be fine.
Tune in to News Talk 630 WPRO and 99.7 FM daily for our "Making Money Updates". Get the latest market news and our take on the day's events with our market commentary at 8:10am and 5:32pm. For more information, visit www.StrategicPoint.com.
*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors.
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