Markets took a beating this week. While there were a few other factors, such as a disappointing jobs report, the focus has been on the troubles in the Eurozone. The Dow ended the week down 4.01%, the S&P 4.23%, and the Nasdaq 5.01%.
We have noted that had one waited to sell until even significantly after Lehman Brothers’ collapse, he would have avoided the bulk of the losses of the markets. The markets were not perfectly “efficient,” allowing time to act even after the news broke.
The question now is, are we in a similar situation? Can we get out in front of the collapsing European markets? We are not sure that the analogy holds. Now, as opposed to in 2008, earnings reports are coming in strong from U.S. companies. The underlying fundamentals are solid. The recent dip may be a buying opportunity- not a selling one. Still, we are worried by the continuing issues in Europe.
This week’s factoid: the U.S. imports approximately 9,783,000 barrels of crude oil a day. Estimates put the oil spill at 5,000-90,000 barrels a day. Or, as our Senior Vice President put it, “They have no clue.”
The three major domestic equity markets finished up this week despite back-to-back triple digit losses in the Dow Thursday and Friday. The Dow ended up 2.31%, the S&P 2.27%, and the Nasdaq 3.58%. The markets ignored an upbeat jobs report Thursday and chose to focus on the growing European financial crisis.
The large losses at the end of the week were unsettling, but the week didn’t point towards a trend of loss, as we ended the week higher. Rather, it points towards volatility. Large swings in both directions have been the norm these past few weeks. While it is emotionally taxing, we remain confident that the volatile numbers will still give way to a general uptrend.
Next week, the markets’ focus will remain on Europe. In recent weeks the trend has been to sell stocks at the end of the week. Unless something significant happens, we suspect that trend will continue in the near term. (more…)
The markets took a beating this week. There is a common perception that the markets’ faltering on Thursday was due to a trading error. This explanation was widely latched on to and used to “explain away” any problems. However, had it been the case that it were merely an error, traders would have moved the market back to an appropriate equilibrium as soon as the error was discovered. Instead, markets continued their plunge on Friday.
The decline may not be any more “real” than any given correction, but it is certainly more real than just some trading error. For the week, the Dow was down 5.71%, the S&P 6.38%, and the Nasdaq 7.95%.
The problems surrounding the “PIGS” zone are more likely to blame for much of the markets’ jitters. The resulting correction may be a buying opportunity- or may be a warning, giving a selling opportunity. It comes down to the question of the Eurozone: can its problems be fixed? Will it be fixed soon?
This week’s factoid: EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is a favorite measure of analysts. It shows a company’s performance after taking out the effects of accounting and financing. It is also a means by which a junior analyst can make a fool of himself during an investment meeting, and be teased about it indefinitely.
The major markets ended down this week, breaking the Dow and Nasdaq’s streak of eight up weeks. Goldman Sachs’ legal woes combined with worries about foreign countries’ debt obligations to mete out a pummeling: The Dow ended the week down 1.75%, the S&P 2.50%, and the Nasdaq 2.73%.
“Greece” was the buzzword this week, and we believe “Spain” may be it next week. Standard and Poor’s downgraded Spain’s debt rating this week, and the country’s statistics agency revealed that their unemployment level has risen above 20%. Spain and Portugal are the new economies to watch, and we continue to keep an eye on Greece.
Should these countries’ problems worsen, the United States faces several issues. First, we lose the countries as customers, as they are importers of our goods. The contagion effect will see the problems spread to other Euro nations, exacerbating the problem. And should the financial crisis reignite in Europe, it could lead to another credit crisis.
Next week is a heavy week for financial data. We will get data from the ISM, figures on auto sales and productivity, and April’s unemployment data. 187,000 jobs are forecast to have been created; such a figure would point strongly in the direction of recovery.
Starting this week, we will close each Week in review with a factoid. Did you know the term “blog” is a shortening of “web log”? There is an opinion at the firm that this was due to pure laziness on the part of bloggers.
This afternoon, the Dow and Nasdaq ended the week up 1.68% and 1.97%, respectively, marking their eighth consecutive week of gains. The S&P ended the week up 2.10%, but was down last week.
The jobs report released Thursday pointed toward continued recovery. Initial claims were down 24,000, but the markets expected to see claims down 25,000. The news therefore did not make for any great gains in the markets, but was a welcome continuation of a trend nonetheless.
Corporate earnings have been better than expected this week, but the phenomenon of “whisper numbers,” a buzzword in the late ‘90s, has prevented big gains in reporting stocks.
Next week is a very important one for economic data. We’ll see consumer confidence, the FOMC policy meeting, and the GDP figure for the first quarter. The GDP is expected to have grown at a 3.3% annualized rate.
Markets ended the week mixed. After a strong start to the week, the news on Goldman Sachs effected a pullback Friday. The Dow ended up .19% and the NASDAQ 1.11%, but the S&P was down .19%. The drop Friday was widely attributed to the SEC’s charging of Goldman Sachs with fraud relating to its financial products tied to subprime mortgages. Markets were already aflutter Friday morning, digesting Google’s earnings report: while earnings were up an impressive 37% from last April, the stock’s price fell, and finally ended the day down almost 8%.
Jobless claims unexpectedly rose by 24,000 from last week, as opposed to the anticipated drop of 11,000. Despite this disappointing figure, we still feel the economy is on the right track. Earnings season is fully upon us, and we expect to see promising news across the board.
Leading Indicators, a favorite statistic at the firm, is released next week. We also are looking forward to retail sales numbers and the release on inflation.
This week, the Dow ended up .64%, briefly breaking through the 11,000 mark. The S&P was up 1.37%, and the Nasdaq saw tech stocks rebounding, ending up 2.14%. This marks the 6th straight week of gains for the three major indexes.
Stocks continued their gains on the heels of the positive jobs report last Friday, which revealed that nonfarm payrolls added 162,000 jobs in March. Additionally, The Fed seems to be weaning itself from its supply-loosening policies, and mortgage rates are trending higher.
This good news will hopefully be reflected in the coming earnings season for Q1, which is just around the corner.
The U.S. economy has continued the recovery that began late in 2009. We expect first quarter 2010 growth to be around 3.5%. The recovery is currently being stimulated by improvements in manufacturing, specifically automobiles, as well as a general rebuilding of inventories throughout the economy. Inventories declined as much as 15% at the trough of the recession. First quarter economic results will be adversely affected by the awful weather conditions that affected the entire northern half of the United States, but we believe the next step in the recovery will be in the housing sector and should occur this spring.
Representing about 10% of the economy, housing is influenced by seasonal economic adjustments that, by reason of the weather, sent confusing signals. Existing home sales are at an annual rate of 5,020,000 units, up from a low of 4,610,000 in the second quarter of 2009. Though still below optimal levels, we remain optimistic, as low mortgage rates (about 5% for a 30-year fixed rate) should continue to stimulate housing demand. In addition, the home buyer’s tax credit, which expires in April, continues to help. Hopefully, the second quarter, which is typically a much stronger quarter for housing, will lead to a growing consensus that the recovery is gaining momentum. (more…)
Upon picking up my oldest children at BWI for Easter Weekend, it was with some amusement that I listened to both complain on the way home about the amount they were paying in taxes. Proving the apple falls not far from the tree, the oldest son’s observation remains unprintable—let’s just say that the visual equivalent might be akin to sharing one bunk with 3 inmates at the Fallsway Apartments, aka the Baltimore City Jail.
With recent developments emanating from the Augean Stables 35 miles south of here, that inmate number is likely to increase exponentially. In fact, if Einstein is to be believed—the definition of insanity is doing the same thing over and over again and expecting different results—some might conclude the inmates are running the asylum. And if the notion of Einstein intimidates, a highly recommended alternative would be F.A. Hayek’s The Road to Serfdom. But I digress…
Quite simply, we are on an unsustainable path. Matthew Continetti, Associate Editor of The Weekly Standard, had this to say in the lead editorial of magazine’s March 15, 2010 issue:
As it stands, Social Security, Medicare, Medicaid, and debt service constitute more than 60 percent of all government expenditure. The number is set to rise more than 75 percent within a decade. Left unchecked, these four items will consume the entire federal budget by midcentury.
American Enterprise Institute scholar Andrew Biggs estimates the federal government would have to impose an immediate and permanent 30 percent increase on every tax in order to balance its books—in 25 years.
The markets continued with their pattern of robust growth this week, with the Dow up 2.12%, the S&P 1.43% and the NASDAQ 1.15%. GDP data for last quarter was revised downward, as expected. Initial job losses continued to decline. The market responded favorably.
Recently, there has been a steepening of the yield curve. That is, the yield for long-term bonds is higher than that of short-term bonds. There are two potential reasons for this steepening: the market may be signaling that that the economy is strengthening, or that inflation is coming and thus there is little demand for bonds. We suspect that it is some of both. We have been calling for a rising interest rate environment for some time. We may have been a bit early, but it seems to have been a correct prediction.
Next week, there will be very little data due to the Easter break. We hope to see the market continue its steady incline.
Despite faltering Friday, the markets ended the week with a very respectable gain; the Dow was up 1.1%, the S&P .86%, and the NASDAQ .28%.
The Federal Reserve’s comments on Tuesday did not stray far from what was expected. It was the general consensus that rates would not be raised, but some were worried that the Fed might hint at rate changes in the near future. The Fed did not telegraph any imminent changes, and the markets were mildly assuaged, moving up about 0.6% Tuesday. We have observed that it is Bernanke’s style to be freer with telegraphing coming action than past Fed chairman Alan Greenspan.
We’ve paid special attention to the Dow Jones Transportation Index, and have noted that is it performing better than most other indices. The Transportation Index is a leading indicator. Typically, it is one of the first industries to move in the early stages of a recovery. If the shipping industry is doing well, it means there are more things being made that need to be shipped. This message from the transportation index is good news for the economy overall, and helps to bolster our faith that the economy is on its path to recovery.
Next week will be relatively light on data. Durable goods, consumer confidence, and jobless claims will highlight the week.
The markets were up this week, with the NASDAQ leading the charge with a 1.78% gain, the S&P a bit behind, up .99%, and the Dow trailing, but still up nicely, at .55%. The S&P and NASDAQ both set new highs for the year this week , but the S&P retreated below year-high levels Friday. Retail sales numbers beat expectations, a good sign for our continued recovery, but the markets seemed nonplussed.
We continue to be leery of bonds. We think that interest rates are likely to go higher in the next few years. As such, bond performance will suffer. We think it best to keep maturities short for now.
Next week, the Fed meets to discuss the economy and interest rates. We don’t expect the rate to change. However, we do think the language of the statement will reflect changing attitudes about the recovery. We’ll also get data next week on housing and inflation.
This entry is a day late due to our investment meeting being rescheduled.
Last week, the markets rose, and the NASDAQ set a high for the year. The Dow was up 2.33%, the S&P 3.1%, and the NASDAQ 3.94%.
As expected, job numbers were the biggest driver of the markets. Nonfarm payrolls were down 36,000, as opposed to the 75,000 which were expected. Unemployment held steady at 9.7%. Investors took this as further evidence of continued recovery, and bet on a continuation of that trend.
This week will a relatively light one for economic data. Retail sales numbers come out on Friday, and of course we’ll note the weekly jobless claims, but there are few other large events.
Markets broke a two-week trend of gains to end the week down slightly, with the Dow down .74%, the S&P .42%, and the NASDAQ .25%. The markets did end the month up, however. In fact, the February performance gain in the S&P 500 was the best February in 10 years. For the year, though, the market is still down about 1%.
As expected, the markets did react strongly to Ben Bernanke’s comments Thursday. However, an even stronger reaction was felt by the faltering commodity prices. Bernanke’s positive comments merely pared the losses related to commodities.
Next week should prove to be an interesting one. We have more data on jobs, including the February unemployment rate, the ISM manufacturing and service numbers, and retail sales at the end of the week. We expect the numbers will show us that the economy is recovering.
The markets have continued their steady plod back towards the recent highs of January 19th. The Dow ended the week up 3.89%, the S&P 2.85% and the NASDAQ 3.04%.
Sovereign debt continues to be the buzzword of the markets. Fears abound that the bailout of Greece and others will devalue the Euro. However, markets were assuaged somewhat by Greece’s statement that it would not need a bailout and was progressing well.
As the U.S. deficit hovers near 10%, we remain concerned about inflation. The spread between 2- and 10-year Treasurys is at an all-time high. This fact could indicate an economic recovery, or impending inflation. Either result will cause lower values for bonds currently being issued. As such, we believe bonds are not a good value at this time.
Next week the big event will be Ben Bernanke’s semiannual monetary policy report to Congress. Many market decisions will undoubtedly hinge on what Bernanke telegraphs at this meeting.
