Weekly Stocks Recap

Sixth Straight Week of Market Gains!

Another positive week as the broad market advanced last week for its sixth weekly gain in a row! The S&P Index rose 1.5% reducing its Year to Date loss to -3.7%. The stock market continues to show significant strength in what continues to be a challenging economic environment. The NASDAQ also continued its hot pace rising 1.2%for the week, but even more striking is its 6.1% Year to Date gain. We are encouraged with the strength the market continues to show as volatility moderates. We grow more optimistic every day that the worst may be over for the stock market. However, uncertainty remains high, and the market could easily fall 10% as it trades within a wide and choppy range. But all in all, we think the bottom was most likely reached in March. Investor confidence is growing and the money flow into the market appears to be growing momentum which will drive stock prices higher.

Economy Disappoints, But Earnings Up Beat!

All in all the economic data was a bit disappointing last week. Retail sales were slower than expected putting a damper on what had been an improving consumer trend over prior weeks. Housing data was also very disappointing with starts dropping to a 510,000 annual rate for one of the lowest levels over recent readings. Housing permits also fell bringing more questions over whether housing has really bottom. The data would suggest that an overall declining trend remains in force, although the declines do appear to be slowing. It is positive that the downward trend is slowing, but the bottom will not be hit until the trend reverses. Industrial production also declined and was worse than expected. Despite the worse than expected economic data, the corporate earnings released last week have shown promise. Intel, JP Morgan, Citigroup, and GE all posted earnings that were better than expected. That helped provide some juice to move the market higher despite the disappointing economic data. However, some perspective on Corporate earnings is important here. While these companies are reporting better than expected earnings, its worth noting that expectation levels are very low. So it is not like company prospects are returning to pre-recession levels any time soon. To date, future outlooks from these companies also remain somewhat mixed. We still look for the economy to begin improving late this year or by first quarter 2010.

Market Beating Foresight

Six straight weeks of market gains demonstrates the strength and positive momentum in the market. We are now in full swing with 1st quarter earnings reports which will take several weeks to complete. We had several key companies report last week, and most reported earnings that exceeded what were admittedly low expectations. If that trend continues, the stock market should respond favorably. That will bring stability to the market and what we hope is a sustainable uptrend. On the other hand, a disastrous outlook on corporate earnings holds potential for driving the market significantly lower. In our view, the most likely scenario is that most companies will meet or exceed what are low earnings expectations. We plan to gradually increase our stock allocations and will likely go all in once this earnings season is complete assuming that there has not been a meltdown. We could go all in now, but we think it is more prudent to wait another few weeks. We will still have 6 or 7 months left this year to make up for any potential gains we give up by sitting in cash. While we do expect quarterly earnings to be okay, we would still caution that the economy and future outlooks will show only slow growth at best. In our minds, that is not a bad thing, which likely means that the stock market will rise more slowly that it has over the past 6 weeks. Of course, as optimism grows, we recognize there is a great deal of pent up demand that could drive stock prices higher than fundamentals would otherwise warrant. Either way, if corporate earnings and future outlooks hold up, we will likely see a rising stock market. Our stock selection strategy will win regardless of whether the market rises slowly or fast.