Bounce

By David B. Armstrong, CFA | Mar 28, 2011 | Weekly Market Commentary

Be sure to see our U.S. News and World Report column from last Friday found here. 

The market has risen 6 out of the past seven trading sessions, and if we close up today it will make it 7 out of eight.  In fact, the markets have recovered all of the losses sustained since the horrible earthquake rocked Japan on March 11^th.

Stocks advanced in the U.S. last week despite the economic releases showing some weaker data.  On top of estimates that the Japan rebuilding costs will run in the $300 billion range, the issue of housing and Portugal’s debt situation had traders worried earlier this month, however, it seems that the stronger U.S. employment picture and the global economic momentum were successful in counteracting those worries.  The equity markets we track were all winners last week.  The Dow Jones Industrial Average (DJIA) gained 3.05% to finish at 12,221, the S&P 500 Index gained 2.70% to finish at 1,314 and the Nasdaq Composite Index gained 3.76% to finish at 2,743.  The Russell 2000 index, which tracks the performance of small capitalization stocks, gained 3.67% to finish at 824.

We are encouraged by the unemployment claims declining to 385k and even more encouraged by the fact that it is predicting well below 400k for the 4^th week.  Remember it was at 643k at the peak of the recession.  That’s a big move down.

Unfortunately the sales of new and existing homes sank to new lows in February.  Additionally, prices of these homes declined as well for the month.

Despite the recent rise in oil prices, we are still encouraged by the low inflation number.  We still believe that for there to be meaningful and harmful inflation, we must see a rise in wages – and that’s simply not anywhere in sight.  Additionally, growth (measured by GDP) still seems strong.  In fact, one of the positive releases from last week was the revision of 4Q GDP up from 2.8% to 3.1%.

Our outlook on the equity market has not changed and we have not taken any steps to change portfolios.  This is due to the fact that we believe in making changes only when we see major changes in the business or economic cycles.  While tragic and sad, most of the issues causing the recent selloff are not really impacting those cycles enough to warrant any change.

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.