Weekly Review
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March 8, 2010 March started off well for stocks despite a continued mix of news on the economic front. The Nasdaq Composite led the charge last week in posting a gain of 3.9%. The S&P 500 climbed 3.1%, while the Dow Jones Industrial Average added 2.3%.
The Federal Reserve indicated in its latest Beige Book of economic activity that conditions improved in nine of the 12 Fed regions. However, the rate of recovery was modest, indicating the economy is still suffering through the aftershocks of the recession. On a bright note, the Institute for Supply Management’s service sector index climbed to 53. Any reading above 50 suggests expansion. The service sector has been a decided laggard in the recovery, so it is definitely a positive sign to see this indicator start to turn. Another good sign came from chain stores who posted stronger than anticipated sales during February. Most analysts had braced for the worst after severe weather was expected to have impacted sales during this time.
Stock market gains were cemented last week after it was reported only 36,000 jobs were eliminated during February. The consensus prediction was calling for 50,000 jobs to be eliminated and the unemployment rate to climb to 9.8%. Instead the unemployment rate remained unchanged. A couple of years ago this data would have been considered dismal. Now it has become a reason to celebrate on Wall Street.
The truth lies somewhere in between the two. We are nowhere near what can be historically described as a healthy economy. However, the data is definitely trending in the correct direction. The lack of a rapid snapback is keeping expectations in check. Meanwhile, companies have cut expenses to the bone and have seen significant increases in productivity. This means they are able to generate much greater earnings growth than their top line expansion would suggest. Tempered expectations coupled with improving bottom line results means the stock market has kept an upward bias.
Insight expects equity investors will continue to do well in the months ahead. The positive trends that are in place are still in their infancy. Barring another shock to the world financial system, these positive trends should remain in place for an extended period.
This week is light on data as Friday’s reports on consumer sentiment and retail sales are the only reports of any significance. This may mean the fight on Capitol Hill gets center stage as Congress looks to debate the merits of healthcare and financial reforms. Stocks in these sectors are being held hostage as investors wait to see what the final outcome will be concerning potential legislation. As is often the case, the uncertainty often causes more damage to stocks than any actual action. For better or worse, it appears the healthcare uncertainty will be resolved by the time of next earnings season in April. Regardless, the macro picture remains positive and argues for investors to add to positions during market downturns.
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March 10, 2010
March started off well for stocks despite a continued mix of news on the economic front. The Nasdaq Composite led the charge last week in posting a gain of 3.9%. The S&P 500 climbed 3.1%, while the Dow Jones Industrial Average added 2.3%.