The Week in Review: 12.14.09 – 12.18.09

Markets were mostly flat this week, but were pummeled on Thursday due to employment data. For the week, the Dow lost 1.36%, and the S&P .36%. The NASDAQ  actually rallied Friday, ending the week up .98%.   Initial jobless claims unexpectedly rose on Thursday by 7,000 from the week prior, for a total of 480,000. While still below the 500,000 level, the unexpected increase signals that there is still far to go on the road to recovery.

Bond data released this week painted an interesting picture of the market.  Near record amounts of non-investment grade bonds have been sold this year.  The record was set in 2006, with $143.5 billion sold. This year, $142.8 billion have been sold.   These compare to last year, with only $48 billion of these bonds being sold. The new figures tell us that the appetite for risk is back in bonds.  Once again, investors are reaching for extra yield, and taking more risk to do so. It is frightening to think that investors have already forgotten the lessons to be learned in the near-collapse last year.

Next week, we continue to looks for signs of recovery.  We will get readings on the housing market, employment, and consumer confidence.

The Week in Review: 12.7.09 – 12.11.09

Stocks had a mixed week, with the Dow up .8%, the S&P up .04%, and the NASDAQ down .18%. Initial jobless claims were unexpectedly higher this week, but this fact was balanced somewhat by the report that the trade gap had narrowed. The resultant conclusion was that while employment may not be rocketing back, the economy does seem to have regained some footing.

Banks continue not to loan out money. Our estimation is that they are scared to do so because of the new perceptions of risk. The banks are angry in their position- they don’t seem to be renewing lines of credit held by businesses.

The Week in Review: 11.30.09 – 12.4.09

The markets seemed unsure of themselves this week— big gains on Tuesday, a drop in late trading Thursday, and big swings in both directions Friday.  The very positive jobs report Friday prompted some early gains— only to be reversed later in the day. When all was said and done, the Dow was up .77% for the week, the S&P 1.32%, and the NASDAQ 2.6%.

Looking forward to the holiday gift-buying season, there is some concern that inventories are too low, which will result in lower sales levels than what may be demanded. This shortage of supply would, however, enable retailers to earn higher margins on the inventory they do have- there would be no need for product markdowns.

Next week is a relatively light week for economic data. At the end of the week, we will be watching continuing claims for unemployment, retail sales, and consumer confidence.  Check back soon for our 2010 market outlook.

Hardesty Horizons – 3Q 2009 Newsletter

This link will take you to Hardesty’s third quarter 2009 newsletter: Hardesty Horizons 3Q 2009.  This quarter’s theme is “Economic Growth Returns — Markets Respond”.

The Week in Review: 11.16.09 – 11.20.09

The markets had a mixed week, and an especially unnerving drop on Thursday.   The Dow was up .46%, the S&P down .19%, and the NASDAQ down 1.01%. Markets were shaken Thursday, with a 94-point drop in the Dow. On Thursday evening, Dell reported earnings numbers, which were much lower than expected. Dell has had difficulty maintaining their margins while offering discounts to encourage sales during the recession.

There is some contention about the level of sales we will see in the coming Black Friday and general Christmas selling season. On one hand, retailers are offering deep discounts, which may simply be a reflection of high markups, but the important result is the consumer’s perception of value. On the other, retail inventories were down 14% for the month of October, according to the Census Bureau data released November 16. This figure might indicate that retailers are expecting a relatively light Christmas season.

Next week, there is a significant amount of housing data being released. Both new and existing home sales will be coming out, as well as mortgage applications and the home price index. We will also see durable goods orders, consumer confidence figures, and of course, weekly initial jobless claims.

The Week in Review: 11.9.09 – 11.13.09

Markets had another strong week, with the Dow up 2.5%, the S%P 2.3%, and the NASDAQ 2.6%.  Earnings reports continued to be strong, with Ebay, Carefusion, and Norfolk Southern all posting impressive numbers.   Consumer sentiment fell in early November, according to a preliminary report released Friday. Mounting unemployment may be to blame, as consumers do not view the recovery as imminent as bullish economists.

We are somewhat disappointed by the status of the TARP stimulus money.  Particularly, banks took their stimulus money and did not loan it out, preferring instead to shore up their own capital.  We see an abundance of new loans in China, where steel output has reached 660 million tons compared to the U.S.’  50.7 million tons.  China is clearly using their stimulus money for infrastructure development.  The loans were made by banks in China not because of an appetite for risk; rather, the government “encouraged” them to make funds available.  While the result is good- significant rebound in manufacturing- we do not advocate any move towards a command economy.  The excess reserves in U.S. banks may not have provided the same jumpstart as China’s loans, but they stand ready to be lent against to support the system in a recovery.

Next week, inflation is big, with both the CPI and PPI being reported. Also released will be retail sales and housing starts.  Hopefully, the latter two will paint a brighter picture of the recovery, and will help turn some consumers around.

The Week in Review: 11.2.09 – 11.6.09

This week, the markets seesawed back up, with the Dow gaining 2.56%, the S&P 2.29%, and the NASDAQ 2.68%.  The Dow continued teasing us by dancing around 10,000, finally ending the week just above it.  The yelled-about correction doesn’t seem to have started, after all.

On Friday, the market was able mostly to shrug off the disappointing employment figures, which showed the U.S. at 10.2% unemployment.  Thursday, data released showed a 9.5% annualized rise in worker productivity.  These facts taken together mean that companies are doing more work with fewer workers. Manufacturers are demanding even more from their workers in an effort to cut costs- productivity in manufacturing plants is up 13.6%.

Next week will be light in economic data. As always, we look toward initial jobless claims.  Otherwise, earnings season is winding and we will see how the market reacts as it digests companies’ reports.

The Week in Review: 10.26.09 – 10.30.09

While we had been seeing earnings figures as the primary influence on the markets for the past few weeks, the economy drove the market this week. The different data that came in had opposing effects.  The two most important reports were Thursday’s GDP numbers, coming in at an unexpectedly high 3.5% growth, and Friday’s consumer spending report, in which spending dropped by the most it has in nine months.  The drop in spending was widely attributed to the cessation of the “cash for clunkers” program. Durable goods orders were up 1%, in line with expectations.

On Wednesday, commentators were quick to yell “correction!” when the markets dropped.  On Thursday, they backpedaled and resumed a less alarmist route.  On Friday, the correction talk came back.   While we can’t say for sure if there is a correction brewing or not, we still remain confident in the markets in general.  We expect the year to end with the markets above current levels, at the least.

To quantify the week, The Dow was down 2.60%, the S&P 4.01%, and the NASDAQ 5.08%.

Next week is a very heavy week for economic data.  Most significant will be ISM manufacturing data, productivity numbers, unemployment figures, automobile sales, and the pending home sales index.  The combination of these and other figures next week should help to paint a clearer picture of our position in the recovery.

The Week in Review: 10.19.09 – 10.23.09

After a rollercoaster ride of a week, the markets ended down, owing to a big final dip on Friday.  For the week, the Dow was down .2%, the S&P.7%, and the NASDAQ .7%. Sadly, we again dropped below 10,000 before the week was out.

The dip on Tuesday might be blamed on the housing numbers for last month, which showed 590,000 starts, compared with the 610,000 that were expected.  On Thursday, initial jobless claims were  announced.  The figures were higher than many expected, up 11,00 from last week to 531,000, after a trail of consecutive decreases.   Earnings figures helped propel stocks through the week, with many earnings results even better than we had hoped.  However, the boost was evidently not enough.

There continues to be net flow of cash out of equities.  As we are known to advise, investors help us know what’s right by doing what’s wrong.

Next week, we look toward durable orders numbers for a picture of the manufacturing sector.  Durable orders are considered a leading indicator, so they may show us what’s coming next in manufacturing activity.  Also next week we will see consumer confidence data.  We hope the figures will have improved- all the talk of an immediate recovery should have helped to loosen purse strings a bit.

The Week in Review: 10.12.09 – 10.16.09

Stocks had another nice set of gains this week, despite a loss Friday.   We also briefly crossed the much-coveted 10,000 mark in the Dow, though it is a psychological mark only.  The Dow was up 1.33%, the S&P 1.51%, and the Nasdaq .82%.  For the year, we are now up 14%, 21%, and 37%, respectively.

Retail sales fell 1.5% last month, versus an expected 2.1% loss. We are in the undesirable position of celebrating a mere 1.5% loss in retail sales.  Initial jobless claims, too, fell to lower levels, now at their lowest since January.  Again, we celebrate a paltry half-million people filing their initial jobless claims. We look back at 2007, when 350,000 was considered very high.

The S&P 500 index is now trading at about 15 times 2010 earnings.  Under normal circumstances, this would be a clear sign of undervalued stocks, and we would expect to see a quick return to a 20-times level, given where we are in the economic cycle.  However, with unemployment reaching 10% and interest rates at or near 0%, the economic environment is anything but “normal.”  We expect to see a return to historic valuation levels- but not before these other wrinkles are ironed out.

Money continues to flow into bonds, while money market funds and equities continue to have negative flows.  This is surprising, as we believe we are primed for a correction in the bond markets.  It is predominantly professionals coming out of money market funds, while mutual funds are dominated by individual investors. The “average investor” can, as usual, be relied upon to show us what the wrong move to take is.

Next week is a relatively light one in economic news; the main focus is housing numbers that will be released.  Of course, we will also have an update in weekly claims.  Earnings reports will take the main stage, and will certainly drive the market next week.  For those companies reporting, we expect generally positive results.