Weekly Stock Update

Market Shrugs Off Flu!

The market was able to resume its advance last week, despite wide ranging fears over spread of the swine flu. Concerns over the swine flu appear to have been overdone and by the end of the week the broad market (S&P 500) finished up 1.3%. The Year to Date loss on the market index has now been trimmed to -2.8%. However, the NASDAQ continues to be the big winner and is now up 9% for the year thanks to technology and smaller capitalization stocks. Subscribers will notice that our investment activity has begun to pick up over the past month. The number of opportunities that show on our stock screen has grown each week over the past month. We remain optimistic as the market continues to show strength and resiliency. First quarter earnings season is still in full swing, but will wind down over the next couple of weeks. All things considered, the market has held up pretty well with the onslaught of earnings reports.

Earnings Down, Revenue Lower Than Expected!

Economic reports last week were mixed. On the positive side, consumer confidence readings came in much higher than expected. In addition, manufacturing readings also come in higher than expectations. However, for perspective, the manufacturing readings still indicate contraction, although the pace of contraction has slowed significantly. There were also some negative economic readings released. Preliminary readings on first quarter GDP came in much lower than expected for a declining annualized rate of -6.1%. It appears that some of that GDP decline is attributed to sharply reduced inventory levels, which may tend to overstate the ongoing economic weakness as inventory replenishment will need to happen over time. In addition, reports on technology and construction spending were drastically down for the quarter. We are very encouraged with the consumer confidence readings as improvement in that key measure is vital towards jumpstarting spending levels. And without consumer spending, economic growth will be challenged. Consumer confidence remains at low levels, but the upward trend is an encouraging sign that a economic bottom may be near. However, other reports such as GDP and construction spending highlight just how weak the economy is. Our view is that the economy is still declining, but at a much slower rate. Early bird speculators might see that as the green light to rush in and buy more stocks. We also see this as a sign to increase equity allocations, but would caution those investments are best made only gradually over the near term.

Market Beating Foresight

Last week the market resumed its uptrend. First quarter earnings season remains in full swing as more companies plan releases for next week. It was also another week of choppy trading and spikes of higher market volatility. As we reported last week, most companies are doing better at beating earnings expectations while falling short on revenue expectations. That reinforces our belief that economic recovery may be slower than expected. Next week will also bring more information over the much rumored bank stress tests. Stress Test reports were originally planned for release Friday, but were delayed and all we got were rumors that some large banks may need additional capital. The speculation is that Bank of America and Citigroup stress tests are likely to highlight the need for additional capital. Those rumors will continue to pressure those banks and the financial sector in general until the market gets more clarity on the stress tests. Our trading activity picked up last week and we expect to continue buying as long as the market continues to show strength. However, we do not plan to become fully invested until at least after the first quarter earnings season is complete. We would still caution that the economy and future outlooks will show only slow recovery at best. We hope that the market rebounds with a measured and appropriate response. If the market rises too far too fast, volatility will likely return and could spook investors once again. Overall, we think now is a good time for investors to gradually reenter the market over time.

Remember, our complete list of stocks is Available Online At: http://www.marketbeatingstocks.com