The two-month stock market rally has hit some resistance. The Dow, Nasdaq and S&P 500 all tumbled last week
for the first time since early March after a nine week rally for the Nasdaq and an eight out of nine week rally for the Dow and
S&P 500. With the profit taking, the S&P was down 5.0%, followed by the Dow at -3.6% and the Nasdaq at -3.4%. Among sectors, Financials
led the way, declining 12.1%, which is fitting as the sector outperformed during the rally, particularly last week when surged 23% on
the bank stress test results.
Last week seemed to bring more bad news than good in the form of weaker-than-expected reports on retail sales, housing and weekly jobless
claims. Advance Sales for retail came in at -0.4% in April, while the prior month was revised lower to -1.3% from -1.1%. The markets were
looking to a rebound in consumer spending as a signal of overall economic recovery later this year, but the two months in a row of declines
don't support that argument. With unemployment continuing to rise and wage gains stagnating, the outlook for consumer spending remains
poor.
The end of the week saw mixed economic data. PPI came in at 0.3% month/month in April, CPI came in at 0.0% and Industrial Production came
in slightly better-than-expected at -0.5% in April. The pressing message in the Industrial Production report is that demand continues to
be weak and is now at its lowest point since records began in 1967. It goes to show how quickly business has ramped down its production
capabilities to deal with the drop in aggregate demand.
And let's not forget, last week Chrysler said it was cutting around 25% of its dealerships and General Motors (GM) announced that it was
cutting the first 1,100 of what is expected to be a 40% cut of its dealerships.
Many market pundits and economists are calling the recent two month rally a sign that we have seen the bear market bottom and that last
week was just a spout of profit taking. You even have the White House making comments that the economy is starting to see a bottom and that
in 2010 we will see a recovery. Maybe I am a cynic, but I believe there is plenty more negative news out there that we have yet to digest
that will pull this market down, and I am not alone. Standard & Poor’s last week said the nation’s banking crisis has ‘merely entered a
new phase’ and might not end before 2013. You also have Paul Krugman, Princeton University’s Nobel Prize-winning economist, joining Nouriel
Roubini in calling for a more cautious outlook on growth. Roubini said last week analysts expecting the US economy to rebound in the third
and fourth quarter were "too optimistic." Finally, Nassim Nicholas Taleb, the author of ‘Black Swan’,
said the current global crisis is ‘vastly worse’ than the 1930s. I would be delighted to find out I am wrong. What do you think,
submit a post on whether or not you agree with me.
The Week Ahead. Next week will bring uncertainty as investors sort through reports on housing, leading economic
indicators, jobless claims and a slew of profit reports from retailers. With first-quarter earnings reports winding down and recent optimism
about economic stabilization already factored into stock prices, analysts said there appears to be very little on the horizon to help extend
the recent run-up. After the benchmark S&P 500 rose 37% from the 12-year closing low of early March, analysts and money managers said there
is a risk that U.S. stocks may be on the cusp of a long-predicted pullback.
The economic calendar has a light docket this week. Housing Starts are expected to
have risen to a seasonally adjusted annual rate of 527,000 units in April, compared with the March pace of 510,000, which was the
second-lowest on record dating back to 1959. On Wednesday, Treasury Secretary Timothy Geithner is expected to testify before the Senate
Banking Committee about the government's bank bailout plan and the minutes from the late-April Federal Reserve policy meeting are due for
release. Finally, the April index of leading economic indicators is expected to have rise 0.6% after falling 0.3% in the previous month
and the weekly jobless claims report from the Labor Department is due before the start of trading on Friday.
Earnings are starting to slow down as roughly 91%, or 455, of the S&P 500 companies have reported first-quarter results. So far 65%
have beat analysts' estimates, 8% matched them and 26% missed estimates. However, the data is somewhat of a misnomer as the results have
come in after the bar was set extremely low. There will be a smattering of important earnings release this week from retailers and consumer
goods companies reporting. Lowe's (LOW) is due out before the bell Monday (5/18), Home Depot (HD), Saks (SKS), TJX Companies (TJX), and
Hewlett-Packard (HPQ) out on Tuesday (5/19), Deere (DE), Intuit (INTU), Limited (LTD), PetSmart (PETM) and Target (TGT) out on Wednesday
(5/20), Barnes & Noble (BKS), GameStop (GME), Hormel Foods (HRL), Ross Stores (ROST) and Gap (GPS) on Thursday (5/21) and Campbell Soup
(CPB) on Friday (5/22).
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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
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