The Week Ahead

March 14, 2011

03.14.11
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

03.07.11
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

02.28.11
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

02.22.11
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

02.14.11
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

02.07.11
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

01.31.11
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.

The Week Ahead

January 24, 2011

01.24.11
Markets last week were mixed, with the DJIA advancing 0.7%, while the Nasdaq, the S&P 500 and the Russell 2000 all declined by –2.4%, -0.8% and –4.3% respectively.  Earnings reports were mixed, with GE’s positive surprise only partially offsetting disappointments registered by BAC and FFIV [reining in the cloud computing euphoria].
The week ahead includes earnings and non-earning events of note.  The earnings calendar includes MCD MMM AXP EMC JNJ VZ BA T CL MSFT CVX and Ford.  The State of the Union and the Federal Reserve meeting on Wednesday will also be important.
Finally, manufacturing activity in the US is quietly expanding.  Capacity utilization rose by 0.6% in December to 76%.

This is producing manufacturing employment increases, and has plenty of runway ahead of it [the average since 1972 is 80.6%].

The Week Ahead

January 18, 2011

01.18.11

Last week the DJIA rose 0.96%, for the seventh consecutive weekly gain, to close at a 2½ year high.
Look for a blizzard of earnings reports this week starting with Apple on Tuesday, although Apple’s earnings maybe overshadowed by the announcement that Steve Jobs is taking a second medical leave, and finishing with GE’s earnings on Friday. 4th quarter earnings reports should provide further support for the stock market this week.
The chart below illustrates the current quarterly year over year estimated earnings growth rate of 30.7% for the S&P 500.

The Week Ahead

January 10, 2011

01.10.11
We read with interest today a survey of 140 institutional money managers that was conducted by Morgan Stanley Smith Barney.  While it is unsettling to be part of a consensus, many of their conclusions dovetail with our findings.
Earnings are expected to be up in 2011 by 11% versus bottoms-up forecasts of 13.4%. S&P 500 go ahead is projected at 9%, with more participants expecting 20%+ up versus down.
Large-cap stocks are projected to outperform small and mid-size companies, and growth stocks to outperform value(this by a very wide margin).  Finally US stocks are projected to outperform international.  It’s not a bad way to approach the market as we enter 2011!