“The teacher asked me what was the capital of North Carolina…I said Washington, D. C…” Talladega Nights, 2006

By David B. Armstrong, CFA | Nov 08, 2010 | Weekly Market Commentary

It was an exciting week in Washington, D.C. – the town everyone was paying attention to last Tuesday night.  While I was at a conference in Dallas last week, several of my colleagues decided to pass up an opportunity to get a back stage tour of the new Dallas Cowboy’s stadium in order to watch the election results.  I opted to take the tour and was lucky enough to convince a security guard to throw me a pass into the end zone.  I think it was the only touchdown pass a Dallas fan has seen in that stadium all year.

Last week saw gains in the equity markets that recorded a 2010 high for the S&P 500 and led the Dow Jones Industrial Average to levels not seen since before the Lehman collapse.  The close of the market Friday marked the ninth positive week out of the past ten for the markets.

Now, it’s all about the TAXES!!!

The Dow Jones Industrial Average (DJIA) finished the week by gaining 2.93% to finish at 11,444, the S&P 500 Index gained 3.60% to finish at 1,226 and the Nasdaq Composite Index gained 2.85% to finish at 2,579.  The Russell 2000, which measures smaller capitalization stocks, rose an incredible 4.73% to finish the week at 736.59.

Financials fared well last week, reacting positively to the news that regulators may soon allow some banks to raise their dividends.  The only sectors that lost ground last week were defense sectors like Telecom, Health Care and the Consumer Staples.

Last week was all about the conclusion of two major events; the mid-term elections and the announcement by the Federal Reserve that they will purchase up to $600 billion worth of Treasuries at a clip of about $75 billion per week.  Not that there is much clarity now, but there is certainly a little bit more than there was.  Additionally, the jobs report showed that there was some life in the private sector as it related to hiring, with 151,000 new jobs created in October.  This is the best report since April.

Now that the election results are in, we shift our thoughts to questioning what will happen during the lame duck session as it relates to the upcoming end of the Bush tax cuts.  We suspect that the tax cuts will be extended but not made permanent, and hope that this happens before the end of the year rather than applied retroactively to Jan 1s after the new congress has been sworn in.  Since tax withholding will ratchet up on Jan 1st  to the pre-Bush tax cut levels automatically, the economy will not be the beneficiary of that withheld money until refunds are issued in the 2012 calendar year – so the sooner this is decided upon, the better for everyone involved.

Earnings reports continue to roll in, and while some of them are lackluster, the number of companies reporting higher than expected top-line revenue numbers stand at 57%.   Additionally, the number of companies beating bottom-line profit numbers stands at 75%.  We have contended for a long time that it is important for the economy to see companies increasing their top-line revenue numbers, and 57% is an acceptable number for us!  According to data from FactSet, 3Q 2010 earnings look like they will finish up about 30% higher than the same quarter in 2009.

Continue to be careful…have a plan, stick to it and be smart.  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. Precious metal investing is subject to substantial fluctuation and potential for loss. The fast price swings of commodities will result in significant volatility in an investor’s holdings.