Stocks have been on a tear since early March, with the Dow and S&P 500 both rising for 8 of the last 9 weeks and the
Nasdaq advancing for 9 in a row. Since March 9th, the Dow has gained 31%, the S&P 500 has gained 37.4%, and the Nasdaq has gained 37%.
The week started out strong with soaring overseas markets and better-than-expected economic data. Pending Home Sales came in at a
better-than-expected 3.2% in March, while Construction Spending came in at a better-than-expected 0.3% in March. The market rallied again
on Wednesday after employers cut fewer jobs than expected. The ADP Employment report showed a cut of only 491,000
jobs vs. the loss of 645,000 jobs expected. The market ended the week strong after Nonfarm Payrolls were better-than-expected at -539,000.
Although the unemployment rate soared to 8.9%, the highest since September 1983, the data also showed that U.S. employers cut the
fewest jobs since October 2008.
The Financial sector was far and away the best this week, surging 23.0%. After weeks of leaks, the market knew what to expect from the
stress tests, and with roughly $75 billion in capital requirements
being lower than initially feared, the market started to believe that the market has started to bottom. The stress results showed 10
of the 19 banks tested need to raise capital. Three have already taken action, with Wells Fargo (WFC) announcing an $8.6 billion stock
offering, Morgan Stanley (MS) announcing an $8 billion stock and debt offering and Citigroup (C) expanded its previously announced public
exchange offer by $5.5 billion, which equals its capital needs.
As you may have noticed, the market has been able to keep the mind-boggling rally alive by focusing on the positive, or at least the
"less bad" news. As investors are taking their eyes off of the underlying economic condition, we may be in for a large correction. Right
now, you are seeing the fear of people believing they will miss the train if they don't jump in now. This "herd mentality" is going to lead
the lemmings right off the cliff. However, that wariness of missing out could lift stocks in the week ahead. You can't fight the momentum,
no matter how irrational it may seem.
The Week Ahead. As the market continues to climb, the hope that the market has seen a bottom is growing. With
bank stress tests out of the way, investors are hopeful retail sales will reinforce views the economy is on the mend. A further advance this
week could yield a crucial milestone since the Dow is the only major index that has yet to turn positive for the year. At Friday's
close, it was off 2.3% for the year. Some pundits even believe you could see the S&P 500 above 1,000 in the next several weeks. Technically,
the S&P 500 is now fewer than 30 points away from breaking above its 200-day moving average, a closely watched gauge of the broad market's
strength. The S&P 500 has not closed above its 200-day moving average since December 2007.
On the docket this week: Federal Reserve Chairman Ben Bernanke will keep a spotlight on the
banking industry as he gives a keynote about the financial system's condition. On tap for Tuesday: the March trade gap is expected to have
widened to $29.2 billion from $26 billion in February; The National Association of Realtors releases its report on first-quarter median home
prices; the Senate Finance Committee holds a hearing on funding health care reform; and Treasury releases its April budget. We will see
April retail sales on Wednesday, along with import/exports and weekly crude inventories. On Thursday and Friday the PPI, CPI and weekly jobless
claims will be released.
Earnings are starting to slow down with roughly 85% of the S&P 500 companies already reporting their quarterly results. So far, 65% beat
estimates, 8% came out in line, and 27% have missed projections. The retail sector will be represented by some heavy hitters. Wal-Mart (WMT),
Macy's (M), Kohl's (KSS), Nordstrom (JWN), and JCPenney (JCP) will all report this week with their quarterly scorecards being scrutinized
for clues about the financial health of U.S. consumers, whose spending accounts for about two-thirds of U.S. economic activity.
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With all of the market volatility and the worsening global crisis, it is hard to tell when we will see a bottom. We would like
to hear your thoughts on a bottom. Do you think the market will bottom in 2009?
You can even guess where the DOW will
bottom. We are also curious to know if you
are still buying and holding onto your stocks or are you moving into shorter term trades and cash?
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