Market Week: April 12, 2010

The Markets

Touch and go: The Dow played now-you-see-it, now-you-don’t with the 11,000 mark late on Friday. Along with the S&P 500 and the Nasdaq, it trudged upward for the eighth time in the last nine weeks, while small caps resumed their leadership of the equities markets. After a brief foray above 4% Monday, the yield on 10-year Treasuries retreated a bit by week’s end.

Equity markets continue to “climb a wall of worry” shrugging off persistently high unemployment and concerns about the economic recovery. There is a significant amount of cash on the sidelines as investors remain skeptical of this rally. This cash is fuel to the market as investors slowly capitulate for fear of missing further upside. Healthy skepticism reinforces a bullish stance for the immediate future. We continue to recommend being long the stock market as well as select commodity markets i.e. Copper, Crude Oil, Heating Oil, and Gold.

Market/Index	2009 Close	Prior Week	As of 4/9	Week Change	YTD Change
DJIA	10428.05	10927.07	10997.35	.64%	5.46%
NASDAQ	2269.15	2402.58	2454.05	2.14%	8.15%
S&P 500	1115.10	1178.10	1194.37	1.38%	7.11%
Russell 2000	625.39	683.98	702.95	2.77%	12.4%
Global Dow	1984.48	2039.58	2054.70	.74%	3.54%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.96%	3.90%	-6 bps	5 bps

Last Week’s Headlines

• Pending home sales rose in February by 8.2%, and are up 17.3% from a year ago. The National Association of Realtors® said the figure may represent contracts signed in time to qualify for the April 30 deadline for the homebuyer tax credit.
• Service businesses followed U.S. manufacturing in demonstrating higher growth in March. The Institute for Supply Management (ISM) reported that its index of service businesses rose from 53% in February to 55.4%, the strongest growth since 2005. Only two of the sixteen industries surveyed–real estate rental/leasing and educational services–reported declines.
• The SEC proposed regulations that would require companies that issue asset-backed securities, such as mortgage-backed debt instruments, to hold at least 5% of the underlying debt. The regulations also would require greater disclosure about those underlying loans, such as data about delinquencies/defaults and income verification. The new regulations are intended to reduce reliance on credit ratings and force financial institutions to share in the risks of such securities.
• Financial heavyweights, including CEOs and former Fed Chairman Alan Greenspan, told a investigative panel that when 2008′s credit crisis hit, they were shocked–shocked!–to learn that gambling had been going on with the mortgage-backed securities that helped precipitate the problems.
• Treasury auctions saw healthy demand. Reassured by the Fed’s disinclination to raise either the discount or target fed funds rate, buyers turned out for everything from Treasury Inflation-Protected Securities (TIPS) to 30-year bonds.
• An auction of Greek sovereign debt resulted in a yield over 7% and a weaker euro before other eurozone countries agree over the weekend to set up a $40 billion lending facility to help the troubled country.

Eye on the Week Ahead

It’s the debut of earnings season for the first quarter, with closely watched financial and tech companies on deck this week. Investors who have been buying the rumor in anticipation of another quarter of easy comparisons with 2009 will be faced with deciding whether to continue or sell the news. Greece will hold yet another bond auction, while options expire at week’s end.

Key data releases: U.S. budget deficit (4/12); international trade (4/13); consumer inflation, retail sales (4/14); industrial production, international capital flows (4/15); housing starts (4/16).