Weekly Commentary

April 4, 2011

The 1st quarter ended on a positive note with continued improvement in economic data, most notably with the unemployment rate dipping to 8.8%.  Despite all the headline risk, the S&P 500 posted its best first quarter since 1998, with a gain of 5.4%.
This week’s calendar is pretty quiet with few corporate earnings and little economic updates. “M&A Monday” continues to pick up steam as corporations are becoming more comfortable with the economic landscape. Tuesday we expect to see continued improvement in the ISM-Non Manufacturing report:
The balance of the week consists of the release of the FOMC minutes, which is the summary of the discussions during the previous Federal Reserve meeting. We will also get an update on the state of the consumer with Thursday’s Consumer Credit report.

The Week Ahead

March 28, 2011

The markets continue to climb a wall of worry.  Despite unrest in the Middle East and North Africa and the day-to-day challenges with the recovery effort in Japan and the constant fear of a nuclear catastrophe the markets found a way to move higher last week.  For the week, the S&P 500 was ahead by 2.7% while international markets (EAFE) moved ahead by 3.4%.   Oh, and don’t forget the sovereign debt crisis in Europe…
Earnings and economic news should remain fairly positive.  The week ahead includes US consumer spending, disposable income and pending home sales being reported on Monday.  We expect reasonable consumer spending numbers (increase @ 0.7%) along with moderate disposable income (increase @ 0.3%).  Housing remains a wildcard as weather hampered sales in many parts of the country.  Friday brings the US labor market report along with the ISM manufacturing report … these reports will likely set the market tone until earnings in a few weeks.  Both numbers could be a tad weak following February’s lack of employment growth.

The Week Ahead

March 21, 2011

It is an unusual time for sports fans when world affairs are more spellbinding than NCAA basketball.  The past few days have found us more concerned with Libya and Qaddafi and Japan and their nuclear reactor dangers.  However with Monday’s arrival we now see increasing hope that radiation may be contained in the reactors and that a limited involvement via the no-fly zone can be effective in protecting rebel strongholds in Libya.  A protracted ground war involving U.S. troops seems most unlikely.
With more time we can refocus our thoughts on the U.S. economy.  Unemployment data has been improving slowly and in general the consumer seems a bit more confident.  This Friday we will see the Michigan consumer confidence report.  In general the manufacturing side of the economy has provided a lift and we continue to favor a number of equities in that sector.

The Week Ahead

March 14, 2011

Economic and stock market news understandably took a back seat at the end of last week [which saw a 1.0% decline in the DJIA] to the Japanese earthquake and subsequent tsunami.  The probable death toll has reached 10,000 and is still climbing.  Our prayers go out to all who are affected by this tragedy.
Conflict in the Middle East continued, with the Saudi Arabian “day of rage” fizzling and Libyan government forces gaining ground [in spite of US government cheer-leading for the insurgents].
These conflicts will regain the headlines [for better or worse] when Japan headlines fade.
Last week’s retail sales figures confirmed the current economic expansion, and documented that January’s snowstorms were less disruptive than originally feared.


The Week Ahead

March 7, 2011

Despite the volatility last week, the DJIA advanced 0.33% for the week.  The big news items last week were the jobs report and oil prices.  Crude oil ended the week at $104.41 per barrel, the highest since September of 2008.

The jobs report was much improved over the prior two months with a reported 192,000 new jobs for the month and the unemployment rate declining to 8.9%. The economy will need to continue to create jobs at that rate in order for the unemployment rate to fall further.

This week look for positive retail and auto sales numbers on Friday along with the University of Michigan consumer index. Look for continued volatility in oil as fighting in Libya causes further concerns about oil supply.

The Week Ahead

February 28, 2011

Global markets were faced with geopolitical unrest out of the Middle East, sending all US equity indices lower for the week. These concerns also drove crude oil markets higher, raised inflation concerns and caused US GDP forecasts to be trimmed.
This week we will keep an eye on how far the unrest spreads and if increasing oil supply out of Saudi Arabia will calm oil prices. So far, we do not believe the recent spike in oil is great enough to derail our economy, especially given last week’s reading of consumer confidence, back at levels not seen in 3 years:
As we said last week, corrections will likely be bought by investors, who will be moving out of cash and bonds and into equities.  This week could be a bumpy ride for equities as investors shift their focus to Friday’s employment report.

The Week Ahead

February 22, 2011

The markets edged higher last week on continued positive economic news.  We saw improving ISM and labor market data.  A sharp increase in farm prices has not yet reached the retail level, and we suspect that margins at US companies will begin to compress as they are not able to pass along higher input costs.
Sentiment remains fairly strong, and we see the markets moving higher after a brief pull-back that is due any day now.  Perhaps the unrest in the Middle East along with higher oil prices will be the catalyst for a market pull-back.  Any sustained correction will likely be bought by investors moving out of cash and bonds and into equities.  This week could be a bumpy ride for equity investors.

The Week Ahead

February 14, 2011

The stock market climbing a wall of worry is a term we often hear to describe a market that is going up despite a number of fundamental problems.  While we agree that there are serious issues to deal with, the basic health of the U.S. economy has improved significantly in the last eighteen months.  Forecasters now see the US growing 3-4% in 2011 with corporate profits up 12-15%.

The market is now at 13.8 times those earnings, not unreasonable historically.  We would urge you to focus on these basics and not be overwhelmed by the national debt problem, food inflation and the continuing bad news we hear about global unrest.  Keep the focus on the U.S. economy and the market’s valuation relative to those corporate earnings and you can feel comfortable on the wall of worry.  Remember too that unemployment is a lagging indicator that will improve later in the cycle.

The Week Ahead

February 8, 2011

Markets continued to power ahead last week, with the Nasdaq advancing 3.1%, while the S&P was up 2.7% and even the DJIA was up 2.3%.

Earnings reports, led by firms like Exxon Mobil and Pfizer, are still providing positive surprise.
Egyptian unrest continues, but meetings with protest groups [including the Muslim Brotherhood!] and the Egyptian vice president Suleiman seem to be defusing the situation [for now].
The payroll survey produced conflicting numbers [weather and data restructuring].  We’ll have to wait for next month’s numbers for a clearer employment picture.

The Week Ahead

January 31, 2011

We ended the week on a volatile note as the Middle East, namely Egypt, rattled the markets. Taking Friday’s action into consideration, the markets are still mostly positive year-to-date with the DJIA, the Nasdaq, and the S&P 500 up 2.1%, 1.3% and 1.5% respectively. The Russell 2000 is down 1.1%.  The U.S. appears to be in a more self sustaining expansion as we saw GDP growth accelerate in the fourth quarter to 3.2%.

 Earning season continues this week however most major companies have already reported. Friday’s employment situation is in focus as the jobless claims continue to improve, albeit with a lot of noise in the weekly claims.