“A double Polar Burger wit’ everything.”

By David B. Armstrong, CFA | Jan 18, 2011 | Weekly Market Commentary

“Uh, I’m not very hungry; just gimme a double Polar Burger wit’ everything” John Travolta as Danny Zuko in Grease, 1978.

Last week the S&P 500 finished ‘up’ for the 7^th week in a row thanks to the performance of the financial sector and a solid earnings report from one of the big banks.  Also adding a boost to the index was the technology and energy sectors, which benefited from good earnings reports.

However, there were some economic releases that detracted from the good earnings reports…

The equity markets we track were all up last week.  The DJIA gained 0.96% to finish at 11,787, the S&P 500 Index gained 1.71% to finish at 1,293 and the Nasdaq Composite Index gained 1.93% to finish at 2,755.  The Russell 2000 index, which tracks the performance of small capitalization stocks, gained 2.51% to finish at 808. 

Retail sales for December were a little soft due to bad weather around Christmas time, but when the sales numbers from after Thanksgiving are factored in, the ‘holiday sales’ numbers look pretty darn good – especially compared to the same period in 2009.  In fact, the +7% increase over the 2009 period (Nov and Dec) was the best 2 month performance since 1999 (remember 1999!?) and retail sales have climbed back to their mid-2007 numbers.  This shows the consumer is strong – good stuff.

The report that had most people concerned last week (keeping in mind the S&P 500 posted a 1.71% return…) was that the inflation numbers (CPI) posted a pretty significant increase.  As many of you know, the inflation numbers are always reported as “Headline” and “Core”, the latter of which is reported with the impact of food and energy stripped out.  The headline CPI number jumped 0.50% between Nov and Dec – which is a lot – mostly thanks to gas prices (increasing 8.5%).  This was the biggest jump since June of 2009.

However – when looking at the Core, it shows only a 0.1% increase for the month (December) and only 0.8% increase year over year (Dec 2009 compared to Dec 2010).  The Fed targets the Core and their proclaimed comfort zone is between 1.5% and 2.0% (year/year).  So at 0.8%, it’s still below what makes them nervous.

We will be looking to see how much of the food and energy increases creep into the Core prices over the next few months.  If the Core does not spike up, it means producers are having trouble passing along higher prices to consumers.    

We still have a positive outlook on the equity markets and are over-weight the small and mid cap space and the technology sector.  We are still looking at investments in areas OTHER THAN bonds for fixed income allocations.

Call us for help or if you have any questions. 

Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC

**Standard Compliance Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly.  Stock investing involves risk including loss of principal.  The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index.  The Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.