Focus on the positive within the equity market.

By David B. Armstrong, CFA | Apr 25, 2011 | Weekly Market Commentary

During a short week, we saw 3 out of the 4 days end positively and the markets finish up for the week on good corporate earnings.  However, there is some bad news out there.  With gas at $4.00/gallon and climbing (I saw +$5.00 in California) most economists are lowering their forecast GDP numbers from 3.5% down to 3.0%.  We are in agreement with those new numbers. 

But that does not mean we will see an equity market crash.The equity markets we track were all winners last week.  The Dow Jones Industrial Average (DJIA) gained 1.33% to finish at 12,506, the S&P 500 Index gained 1.34% to finish at 1,337 and the Nasdaq Composite Index gained 2.01% to finish at 2,820.  The Russell 2000 index, which tracks the performance of small capitalization stocks, gained 1.28% to finish at 846.

On top of the now completely over-reported U.S. Debt downgrade, weekly jobless claims fell this week.  However, they still came in above consensus and the “psychological” 400K level.  403K people filed new claims, compared to expectations for 393K. The still elevated level of new claims suggests a still sluggish labor market recovery.

Even with all the bad news, Corporate America continues to deliver. Over 140 S&P 500 companies have reported their 1st quarter 2011 earnings so far and the results are positive.  Most importantly, 76% of the companies that have reported beat their revenue (top-line) forecasts.  Revenues have beaten expectation by 3%, which is good news.  Additionally, 80% of companies beat their profit (bottom line) by 7%.  That’s good too, but we are more excited about the revenue growth – it means companies are selling more goods and services than analysts expected. 

These results are impressive given Japan’s weakness and the slowdown in U.S. economic activity last quarter. Stay tuned, but we think that this is a pretty good sign that earnings season will wrap up with both revenue and profits beating expectations for the entire quarter.

Another nice thing about the earnings reports is that the strength is broad-based. As far as sectors go, Materials and Technology have exceeded EPS (profit) estimates by the greatest amount thus far.  Consumer Staples, Industrials, Materials, and Technology have generated the most revenue upside. Outlooks have been greeted with some caution as estimates for the rest of the year have come down marginally despite the upside to Q1. This week, another 180 S&P 500 companies will report results.

Call us for help or if you have any questions. 

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**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.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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