Saturday, March 18, 2006

Weekly Recap

Here is a recap of this week's market activity:

The S&P 500 index was up every day this week. This was not due to specific news, but rather to a growing belief that the Federal Reserve may be nearing the end of its current rate hike phase.

That line has been heard before. That doesn't matter, and neither does the fact that there was little from the Federal Reserve to change market perceptions. There was a bit of data that helped, but not much.

The February core CPI was up 0.1%. That was a bit below an expected gain, but the underlying trend in inflation hasn't changed much. On a year-over-year basis, the core CPI is up 2.1%. The annualized rate of increase the past three months is 2.0%. The past two months it is also 2.0%. That isn't a lot for the Fed to hang its hat on in terms of claiming victory. The inflation news clearly isn't bad, but it also isn't a change in trend.

Economic expectations haven't changed either. The economic data this past week was mixed. February retail sales were down a larger-than-expected 1.3%, but that was after a big 2.9% January jump. February housing starts fell sharply but were higher than expected and remained high at over a 2.0 million annual rate. February industrial production jumped 0.7%.
On balance, the economic data left first quarter forecasts for real GDP near a 4.5% annual rate.
The earnings calendar was light. Brokers reported some very impressive numbers. That was good news, but doesn't really have implications for the broader market.

What really helped this past week was the belief that the overall fundamentals are good. Most importantly was increased confidence that the Fed will not raise rates too far, and endanger economic and earnings growth. This led to a very broad natured rally, with most sectors and a huge percentage of stocks posting gains for the week.

Whether the Fed statement a week from Tuesday supports the increased optimism about Fed policy remains to be seen. For now, however, that is what has market sentiment very upbeat.
The April oil futures contract closed the week at over $64. That was up from $62 a week before for the near-term contract. The 10-year bond yield closed at 4.67%, down from 4.75% the week before.


At 4:57 PM, Blogger said...

Just wanted to post something before I am consumed with finals. As we wrap up Q1, it would seem that we can look forward to decent earnings growth from comapnies from across the board, with valuations staying at or below historical averages. Some interesting names I wanted to throw out that I have been reading in articles recently CTCO, TPX, ESLR, and DLX. Some of my favorites that I hold now, ACAS and am back in LUFK after getting out in the mid 60's.


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