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Gamecocks beat the #1 ranked Alabama Tide and other important financial market news

By David B. Armstrong, CFA | Oct 12, 2010 | Weekly Market Commentary

I’m often accused of not being able to help myself, this is one of those times – congratulations to all the South Carolina Gamecock fans everywhere, it was an historic win for our program and a moment for all University of South Carolina fans to relish.

Be sure to check out the Monument Wealth Management weekly column on U.S. News & World Report.  Last Friday’s column was one of the Top 5 most read articles on Yahoo Finance.  Posted every Friday, you can read the column here.

Earnings season is now underway, with Alcoa kicking things off last week alongside better than expected earnings and increased revenue.  However, it was the bad news about jobs that really got the market’s approval as stocks expressed optimism over one thing in particular.

The poor jobs report on Friday showed a gain of +64,000 private sector jobs but a cut in government jobs, specifically at the state and local governments levels, This created a net loss of -95,000 jobs overall and further increases the probability that the Fed will take additional action to stimulate the economy when they meet in November – more on that below.

The equity markets finished higher across the board last week with the Dow Jones Industrial Average (DJIA) finishing above 11,000 for the first time since May.  The DJIA gained 1.63% to finish the week at 11,006, the S&P 500 Index gained 1.65% to finish at 1,165 and the Nasdaq Composite Index gained 1.31% to finish at 2,402.  The Russell 2000, which measures smaller capitalization stocks, gained 2.14% to finish at 693.82.

Ahh – the start of a new fresh quarter can only mean one thing – IT’S EARNINGS SEASON!!!  We think we will see another strong earnings season from the 3rd quarter; however, many analysts are beginning to show concern that the earnings out into 2011 will slow down on the weakened economic picture.  However, watch for companies starting to guide expectations of growth down in 2011 as they release their earnings over the next several weeks.  It’s only natural to see expectations for growth ratchet down given the pull back in GDP growth over the last quarter.

It looks like the Fed is poised to keep easing interest rates until we see growth and, quite frankly, some inflation.  The Fed will lower interest rates by printing money and then using that money to purchase government bonds and other debt in the open market.  The simple law of supply and demand takes over from there – the government creates demand for the bonds by purchasing them.  The price of bonds will increase as demand increases (and their supply decreases).  Because bond prices and interest rates move in opposite directions, this increase in bond prices forces the interest rates down.

The market seems to think that this will be an effective program and benefit most asset classes…except the U.S. Dollar.  Again, a simple supply and demand will be at work.  When the Fed prints more money, the supply of dollars goes up and the price comes down.

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.

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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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