“What Could POSSIBLY Go Right?”

By David B. Armstrong, CFA | Oct 04, 2010 | Weekly Market Commentary

Be sure to check out Monument Wealth Management co-founder and partner David B. Armstrong’s weekly column on  US News and World Report. Posted every Friday, you can read his column here.

There has been a good amount of positive economic news over the past few weeks, but not enough to keep the winning streak alive for the equity indices.  Unemployment improved this week along with vehicle sales, consumer spending and construction spending, but some housing market data weighed negatively against the positive news.

However, there is something else that could be a huge economic stimulus that no one really seems to be talking about.  It’s the stock market – specifically, a stock market rally.

Last week Greenspan alluded to this and we think he may have a point.  While the Fed is taking definitive action to spur growth, it could be that a market rally is exactly what is needed to encourage confidence and, in turn, stimulate growth. Confidence goes a long way towards a brighter employment picture, upbeat year-end holiday sales and housing prices.  The corollary to this observation is that a stock market decline could negatively impact confidence and affect all of those items.

The equity markets finished slightly lower last week ending what could have been a 5 week winning streak.   The Dow Jones Industrial Average (DJIA) lost 0.28% to finish the week at 10,829, the S&P 500 Index lost 0.21% to finish at 1,146 and the Nasdaq Composite Index lost 0.44% to finish at 2,371.  The Russell 2000, which measures smaller capitalization stocks, actually gained 1.23% to finish at 679.29.

We continue to believe that the Fed is likely to support policies that improve growth.  It’s looking less and less likely we are heading anywhere towards a Double Dip and it still looks likely that growth will remain muted and that economic data will ping-pong between good and bad for a while.

We are looking for the Fed to accommodate growth by instituting policies that will help create a market rally, which would then potentially increase consumer confidence, thereby hopefully increasing retail sales – especially around the holidays – so that corporate confidence increases and their mountain of cash gets applied to hiring.  Stay tuned.

Please call us if you have any question.

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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.