Friday, April 29, 2011
Stock Market Commentary:
Stocks enjoyed solid gains for the month and week which helped all the major averages soar to fresh 2011 highs! The market is back in a confirmed uptrend and remains healthy as long as all the major averages continue trading above their respective 50 DMA lines. The recent healthy action was in response to a very accommodative Fed, a series of stronger than expected Q1 results, and a host of solid economic data. Now that the market is back in a confirmed rally, odds favor higher, not lower, prices lie ahead.
Monday-Wednesday’s Action: Dollar Falls; Stocks & Commodities Soar To New 2011 Highs!
On Monday, stocks were mixed to slightly lower after the long holiday weekend as oil prices surged and civil unrest spread in Syria and other parts of the Middle East. It is important to keep in mind that the higher oil prices act as an indirect tax on both businesses and consumers which, through time, adversely affects economic growth.
In other news, so far approximately 75% of companies in the S&P 500 that reported Q1 results have topped estimates which bodes well for the current bull market. Strong earnings are an essential factor that drives every bull market. Therefore, as long as this solid action continues, expect higher, not lower prices to follow. Elsewhere, new home sales rose +11% but the housing market continues to bounce along as a large bottom is being built. The report showed that the median price increased by 2.9% to $213,800 but was still down -4.9% vs. the same period last year. The average home price slid -3.8% but prices slid -6.1% on a year on year basis. Supply remains elevated at a 7.3 month total, lower than the 8.2 month total in February.
Stocks rallied on Tuesday sending the Dow Jones Industrial Average, tech-heavy Nasdaq composite, and the benchmark S&P 500 index to a fresh 2011 highs! The Conference Board said consumer confidence rose to 65.4 in April from a revised 63.8 in March. The report topped the Street’s expectation of 64.5 and bodes well for the economic recovery. Elsewhere, housing data remains bleak as the S&P/Case-Shiller Home Price Index fell for an 8th consecutive month in February which brings it eerily close to the April 2009 low. The S&P/Case Shiller index measures home prices in 20 major metropolitan areas around the U.S. and fell –0.2% to 139.27. The reading was slightly above the April 2009 low of 139.26.
Before Wednesday’s open, the Commerce Department said durable goods orders rose +2.5% for the third consecutive month as businesses continue to buy long-term equipment. As expected, the Federal Reserve decided to hold rates steady and reiterated their stance to keep rates near record lows to stimulate the economy. The Fed is not worried about inflation and said that any near term inflationary pressure is probably short-term in nature (i.e. temporary). After the Fed meeting, Ben Bernanke held his first, and historic, press conference which is designed to promote transparency and increase credibility to the public.
Thursday & Friday’s Action: GDP Rises 1.8%, Jobless Claims Edge Higher, & Earnings Remain Strong
Before Thursday’s open, the government said Q1 GDP rose +1.8% which was just shy of the +1.9% expected on the Street. The inflation components of the report also ticked higher which put pressure on the Federal Reserve to raise rates in the foreseeable future. Meanwhile, the Labor Department said jobless claims rose by 25,000 to 429,000 last week which also topped estimates. After Thursday’s open, pending homes sales rose +5.1% to a three month high according to the National Association of Realtors. This was sharply higher than Bloomberg’s estimate for a +1.5% increase. Stocks were relatively quiet on Friday as investors digested a mix bag of earnings from several high profile companies such as: Microsoft (MSFT), Deckers Outdoors (DECK), Crox Inc. (CROX), Research-In-Motion (RIMM), Chevron (CVX), Caterpillar (CAT), among others.
Market Outlook- Market In A Confirmed Rally
From our point of view, the market is back in “rally-mode” as all the major averages continue to trade above their respective 50 DMA lines and are flirting with, or at, fresh 2011 highs! In addition, leading stocks have held up very well even as the major averages slid below their respective 50 DMA lines in mid-April which is another encouraging sign. If you are looking for specific help navigating this market, please contact us for more information.