The 7 week winning streak is OVER…well, at least for the S&P 500!!

By David B. Armstrong, CFA | Jan 24, 2011 | Weekly Market Commentary

The gains we saw in the market on Friday were simply not enough to offset losses from earlier in the week, keeping the S&P 500 from reaching its 8th winning week in a row.  The Dow Jones Industrial Average, however, was able to make it to an 8^th winning week.

While over 125 companies will be reporting their Q4 earnings this week, I suspect that monetary and fiscal policy will take center stage in the news.

Additionally, earnings have been off to a great start with about 74% of companies beating analyst’s earnings estimates.

The equity markets we track were mostly down last week.  The DJIA gained +0.72% to finish at 11,872, the S&P 500 Index lost -0.76% to end at 1,283, and the Nasdaq Composite Index lost -2.39% to finish at 2,690.  The Russell 2000 index, which tracks the performance of small capitalization stocks, lost -4.26% to finish at 773. 

As our regular readers know, we are much more interested in seeing the revenue numbers beating estimates than earnings – it’s simply a tougher hurdle and a much more meaningful gage of economic strength.  People and corporations are either buying more this year than last year or they are not.  Period.  The good news here is that 71% of the companies that have announced revenue numbers have beaten forecasts.    We think that the companies that increase earnings through increased revenues will probably be more richly rewarded than the companies that increase earnings solely through cost cutting. 

We suspect we will see the best revenue growth in the sectors we remain over-weighted in – specifically the technology sectors.

A few months back I wrote about the fact that the best piece of stimulus we could get was an increase in the stock market.  When the market goes up, confidence goes up and that would lead to a pickup in employment.  Well the Fed released its “Beige Book” last week and without boring everyone with the financial gobbledygook, it indicated that conditions were getting better and I think that translates into more confidence as well – good signs.   

Initial jobless claims were better than expected as we saw the number move lower by over 40,000.  Jobless claims were 404,000 vs. the expected 425,000.  Housing data was up for the month of December as well, shedding a little bit more positive light on that part of the economy as well.

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.