Saturday, April 19, 2008

Weekly Wrap

Here is a copy of's Weekly Recap:

What a difference a week makes.

Last Friday the market was bemoaning a very disappointing earnings report from General Electric (GE) and fearing the worst in front of this week's busy earnings reporting period. This Friday it exits the week in an upbeat mood, basking in a sense of relief that this week's earnings reports and economic data were better than feared.

The S&P 500 tacked on a cool 4.3%, which is a bigger gain than it registered for all of 2007! It was the Nasdaq, though, that led the action. With a gain of nearly 5.0%, it registered its best one-week showing since August 2006.

Google (GOOG) played a large role in the Nasdaq's outperformance as it soared 20% on Friday after eclipsing the first quarter consensus EPS estimate by $0.32 and reporting 20% growth in paid clicks. Growth in the latter metric shocked investors as third-party data suggested paid click growth would be in the single-digit range.

Google's good news came on the heels of a battery of better than expected earnings reports and outlooks from other tech bellwethers, namely Intel (INTC) and IBM (IBM). All three companies provided reassuring comments on the demand for their products and services and acknowledged the continued strength in international markets.

The takeaway from these reports, and others from the likes of Caterpillar (CAT), CSX Corp. (CSX), Coca-Cola (KO), and WW Grainger (GWW), was that the earnings picture isn't as dour as one might think when viewed from something other than the financial sector prism.

To the latter point, Thomson Financial estimated at the start of the week that first quarter earnings would decline 14.1%; however, when the financial sector is excluded, the growth rate for the remaining nine sectors would be 6.4%.

With respect to the financial sector, we got a reminder this week that business conditions are far from good.

Earnings reports from Wachovia (WB), JPMorgan Chase (JPM), Merrill Lynch (MER) and Citigroup (C) to name a few all showed sharp downturns versus the prior-year period and in each case, with the exception of JPMorgan Chase, losses for the first quarter.

These reports, though, weren't as bad as expected and that realization unleashed a wave of pent-up buying interest that sent the financial sector up 5.2% for the week.

Strikingly, the financial sector wasn't even the second best-performing sector for the week. That distinction belonged to the technology sector, which rallied 6.3%.

The biggest mover on the week was the energy sector, which advanced 7.7%, moving in near lockstep with oil prices, which shot up 6.1% and finished at a new all-time closing high of $116.90 per barrel.

The big move in oil was evident in a wholesale inflation report that showed producer prices rose 1.1% in March. Rising food prices also played a big part in that uptick, but when both food and energy were excluded, the increase in producer prices was a more palatable 0.2%.

Inflation at the consumer level was better contained, as seen in the Consumer Price Index, which increased 0.3% in March and just 0.2% excluding food and energy. That news and a report of a surprising 0.3% increase in March industrial production contributed to a big rally in the market on Wednesday.

It would be remiss not to add that housing starts and building permits both fell to a 17-year low in March, yet that news had little impact on the market which has grown accustomed to the negative reports on the housing front. Similarly, the market didn't pay much attention to a positive retail sales report for March on Monday knowing that rising gas prices were an influential factor behind the 0.2% increase.

This week the emphasis was on the good news or, in many situations, the better-than-feared news. That disposition led to some robust gains for the major indices.

Readers should remain cognizant, though, that there is a distinct difference between rallying on better-than-feared news and rallying on truly good news. Rallies based on the former can swing sentiment for a short period of time and produce some outsized gains, but it is truly good news that makes for longer-lasting upturns.


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