Market Week: July 19, 2010

The Markets

After inching forward most of the week, domestic equities were felled Friday by a combination of options expirations, a surprisingly negative consumer sentiment report, and lackluster economic data.

As earnings season gets underway, companies are reporting weak top line growth disappointing investors’ expectations. Earnings forecasts for the remainder of the year are foggy at best adding to already elevated levels of uncertainty. The overall market remains in a downtrend and we believe persistent caution is warranted. We favor the consumer goods and technology sectors, specifically Sara Lee (SLE), Broadcom (BRCM) and Qwest (Q). In addition, precious metals (Gold and Silver) and treasury bonds (10 & 30yr) continue to appreciate and act as safe havens.

Market/Index	2009 Close	Prior Week	As of 7/16	Week Change	YTD Change
DJIA	10428.05	10198.03	10097.90	-.98%	-3.17%
NASDAQ	2269.15	2196.45	2179.05	-.79%	-3.97%
S&P 500	1115.10	1077.96	1064.88	-1.21%	-4.50%
Russell 2000	625.39	629.43	610.39	-3.02%	-2.40%
Global Dow	1984.48	1794.46	1788.16	-.35%	-9.89%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.07%	2.96%	-11 bps	-89 bps

Last Week’s Headlines

• The devil is in the details: Congress gave final approval to what is being called the most sweeping financial reform legislation since the Great Depression. The legislation is designed to help prevent problems that led to the 2008 financial crisis from recurring. However, much of its impact will be determined by regulations that will be developed over the next year or so.
• Consumer inflation fell 0.1% in June, putting the annual inflation rate at 1.1%. The Bureau of Labor Statistics said energy costs, which fell 2.9%, were responsible for most of the decline.
• Inflation at the wholesale level also fell in June, for the third straight month, according to the Bureau of Labor Statistics. The drop of 0.5% followed declines of 0.3% and 0.1% in May and April respectively. Prices for raw materials fell the most, by 2.4%. Most of the 0.5% decline in finished products resulted from a drop in consumer food costs, which fell 2.2%.
• Despite falling oil prices, the U.S. trade deficit grew almost 5% in May, according to the Census Bureau. Increased imports from China accounted for a large part of that; the deficit with China alone rose more than 15% from April’s figure. Though exports rose, imports rose even more.
• Retail sales were down for the second month in a row in June, according to the Commerce Department. However, if auto and gas sales are excluded from the total, sales actually rose 0.1% instead of falling 0.5%.
• The Federal Reserve Board lowered slightly its estimate of U.S. growth for the rest of the year to 3%-3.5% instead of the previous 3.5%-3.7%. Translation: don’t look for higher interest rates in the near future.
• The Thomson Reuters/University of Michigan index of consumer sentiment fell dramatically in July, from 76 in June to 66.5. That’s the lowest level since last August.
• Goldman Sachs agreed to pay $550 million to settle civil charges of fraud filed by the SEC. The company, which reported net earnings of $3.46 billion in Q1 2010, admitted its marketing materials for the securities in question “contained incomplete information.” According to the terms of the settlement, $250 million will go to injured investors and $300 million to the U.S. Treasury. Goldman also agreed to review its business practices and training of employees.

Eye on the Week Ahead

Housing data will indicate the extent to which the first-time homebuyer’s tax credit accelerated purchases. Second-quarter earnings reports from several consumer and tech bellwethers also are on deck, as are the results of the stress tests on European banks, scheduled to be released Friday. Finally, Fed Chairman Ben Bernanke will testify before Congress about the state of the economy.

Key data releases: Housing starts (7/20); home resales, leading economic indicators (7/22).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

Market Week: June 21, 2010

The Markets

A strong start to the week enabled domestic equities to regain a foothold in positive territory for the year, though traders began to doze off by the end of the week. As anxiety about Europe eased, the Global Dow outpaced the four domestic indexes for the week.

The broad equity market remains below its 50 and 100 day moving averages with uncertainty and lackluster economic news keeping a lid on prices. We remain cautious and defensive until the market demonstrates renewed strength. In the meantime, we continue to believe precious metals are attractive particularly Silver and Gold. In addition, Consumer Goods and Technology sectors continue to demonstrate strength specifically, Sara Lee (SLE), General Mills (GIS), Apple (AAPL), and Broadcom (BRCM).

Market/Index	2009 Close	Prior Week	As of 6/18	Week Change	YTD Change
DJIA	10428.05	10211.07	10450.64	2.35%	.22%
NASDAQ	2269.15	2243.60	2309.80	2.95%	1.79%
S&P 500	1115.10	1091.60	1117.51	2.37%	.22%
Russell 2000	625.39	649.00	666.92	2.76%	6.64%
Global Dow	1984.48	1766.71	1824.61	3.28%	-8.06%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.24%	3.24%	0 bps	-61 bps

Last Week’s Headlines

• The Bureau of Labor Statistics said consumer inflation fell in May for the second month in a row, largely because of lower gas prices. Even excluding volatile gas and food prices, inflation remained unchanged. Lower energy costs also cut wholesale prices overall 0.3% in May, though they continued to be higher on a year-over-year basis.
• As the homebuyer tax credit began to wind down in May, housing starts for single-family homes fell more than 17% from the month before, according to the Commerce Department. Single-family building permits also were down. However, both building permits and housing starts for all privately-owned homes were up from last year.
• Moody’s became the second rating agency to downgrade Greek sovereign debt to junk status.
  Meanwhile, a successful auction of Spanish debt reassured investors, and French officials proposed raising the country’s retirement age to 62 instead of 60.
• After BP CEO Tony Hayward failed to provide satisfactory answers to a congressional subcommittee investigating the causes of the Gulf oil spill, the company announced that the company was creating a stand-alone organization with day-to-day responsibility for managing BP’s response to the disaster.
• Industrial production in the U.S. was up 1.2% in May, according to the Federal Reserve Board. That put it 7.9% higher than last year at this time. Manufacturing output was almost 8% higher than last year, and a greater amount of industrial production capacity (almost 75%) was used.
• The Conference Board’s Index of Leading Economic Indicators continued to improve, rising 0.4% in May, though the rate of growth is slower than in May 2009.
• In advance of this week’s G-20 meeting, China announced it will allow its currency to fluctuate more rather than being pegged to the U.S. dollar–a move that has been advocated by the U.S. The World Bank said it expects China’s growth to ease off a bit this year to an annual rate of 9.5%, and to 8.5% in 2011. Contributing to the uncertainty are the country’s soaring housing costs, increasing inflation, and declining trade surplus.

Eye on the Week Ahead

Both the G-20 and the Federal Reserve Open Market Committee (FOMC) meet this week. Additional auctions of intermediate-term Treasury debt and Friday’s Gross Domestic Product (GDP) number will be watched for any signs of risk aversion and economic slowdown.

Key data releases: Home resales (6/22); new home sales, FOMC announcement (6/23); durable goods orders (6/24); final Q1 GDP (6/25).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

Market Week: June 7, 2010

The Markets

Slip-sliding away: From the oil disaster in the Gulf to disappointing unemployment numbers to Korean tensions to Hungary’s talk of sovereign default–it all combined to blow a hole out of the bottom of the stock market on Friday. After a short but hardly sweet week of vacillation, the U.S. equities indexes lost more than 3% in a single day (5% for the Russell 2000, which barely hung on to a small gain for the year). Oil prices also plummeted as a result of the economic jitters, and the euro continued its slide against the dollar.

Short term we remain cautious as market action is weak. Gold, Treasury Bond Futures, and long US Dollar positions continue to act as a hedge against inflation and anemic growth. Consumer Staples stocks (e.g. General Mills, Sara Lee) are also acting well as investors flee to safer securities. Longer term the market seems fairly priced if not undervalued; however, the interim volatility is extreme by any measure. We recommend investors continue with a defensive position in their portfolios focusing on high relative strength, high dividend, and low beta securities.

Market/Index	2009 Close	Prior Week	As of 6/4	Week Change	YTD Change
DJIA	10428.05	10136.63	9931.97	-2.02%	-4.76%
NASDAQ	2269.15	2257.04	2219.17	-1.68%	-2.20%
S&P 500	1115.10	1089.41	1064.88	-2.25%	-4.50%
Russell 2000	625.39	661.61	633.97	-4.18%	1.37%
Global Dow	1984.48	1780.31	1741.90	-2.16%	-12.22%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.31%	3.20%	-11 bps	-65 bps

Last Week’s Headlines

• Unemployment fell from 9.9% to 9.7% in May, and the economy created 431,000 jobs. Good news? Not really. It wasn’t the economy but the Census Bureau that created all but 20,000 of those jobs, and those temp jobs will end over the summer. Also, according to the Census Bureau, part of the drop in unemployment resulted from 322,000 people leaving the pool of potential workers.
• U.S. manufacturing continued to expand. The Institute for Supply Management (ISM) said May was the 10th month of expansion in a row, with almost all industries reporting growth (the only area reporting contraction was petroleum/coal). The services sector also saw its fifth straight month of expansion; the ISM’s index stood at 55.4%, the same level as the previous two months (a number over 50 indicates growth).
• Hungary became the latest country to rattle global investors. Government officials spent much of their weekend backtracking from statements on Friday indicating the country could be on the brink of default because of debt problems that could be twice as bad as anticipated.
• Construction spending was up 2.7% in April, according to the Census Bureau. That was reportedly the biggest monthly increase in almost 10 years, though it’s still 10.5% lower than last year’s April figure.
• Residential construction rose 4.4%, while public construction was up 2.4%.

Eye on the Week Ahead

Oil and European sovereign debt problems aren’t going away as investors continue to assess the economic impact of the Gulf oil spill and banks’ exposure to the threat of default.

Key data releases: Consumer credit (6/7); balance of trade, Treasury budget (6/10); retail sales (6/11).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

Market Week: May 24, 2010

The Markets

If it’s not one thing it’s another: Between worries about Eurozone problems and an increase in weekly initial jobless claims here, investors were not in a happy mood last week. Volatility reigned as the Dow and S&P 500 joined the Nasdaq in correction territory on Thursday, when they fell to within shouting distance of their lowest levels on May 6 before recuperating a bit on Friday. The Nasdaq is now down almost 12% from its late April high, while the Dow and S&P were down roughly 9% and 11% respectively. The small-cap Russell also took a hit, but its lead throughout the rally left it the only domestic index still in positive territory for 2010, while the Global Dow has lost 15% since mid-April. The dollar continued to strengthen as investors fled the euro, which at one point sank to its lowest level in four years. Oil also fell below $70 a barrel for the first time since last winter.

We remain cautious on the equity markets in the near term. The recent price action is highly negative and demonstrates investors’ hesitation to put capital to work. We suspect a short term rally will be forthcoming but may not be lasting. Despite the market weakness, however, Automotive Retailing, Precious Metals, and the Mining sectors continue to exhibit relative strength and make new highs.

Market/Index	2009 Close	Prior Week	As of 5/21	Week Change	YTD Change
DJIA	10428.05	10620.16	10193.39	-4.02%	-2.25%
NASDAQ	2269.15	2346.85	2229.04	-5.02%	-1.77%
S&P 500	1115.10	1135.68	1087.69	-4.23%	-2.46%
Russell 2000	625.39	693.98	649.29	-6.44%	3.82%
Global Dow	1984.48	1852.23	1770.00	-4.44%	-10.81%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.44%	3.20%	-24 bps	-65 bps

Last Week’s Headlines

• The Senate passed its version of financial regulatory reform legislation, which will have to be reconciled with the House version. The bill calls for reining in derivatives trading, putting the Federal Reserve in charge of supervising the biggest financial companies and overseeing a new consumer protection agency, setting up a body to monitor “systemic risk” in the financial system, and creating a process for liquidating a major financial institution.
• Though consumer food prices are up, falling gasoline and natural gas costs led to a 0.1% drop in overall consumer prices in April. The decline, the first since March of last year, put the annual inflation rate at 2.2%. And despite higher prices for raw materials, prices at the wholesale level also fell 0.1% (though apart from food and energy, wholesale prices were up 0.2%).
• Germany banned so-called naked short selling (selling an asset without having owned or borrowed that asset) of Eurozone bonds, credit default swaps, and the stock of several large German banks through March 31, 2011, and called for adoption of the ban throughout the Eurozone (naked short selling is also illegal in the U.S.). The move contributed to the continued slide of the euro despite Greece’s payment of €8.5 billion of debt. European finance ministers also agreed to impose tighter restrictions on hedge funds operating there.
• The Securities and Exchange Commission (SEC) proposed halting for five minutes all trading in individual stocks whose prices move 10% or more in a five-minute period. The new circuit breaker pilot program, to be applied across all exchanges, would begin in mid-June after a period of public comment and be reviewed after December 10. The SEC also is considering modification of existing market-wide circuit breakers, which were not tripped during the May 6 chaos. The SEC’s preliminary report on the “flash crash” outlined several potential causes that are being investigated, but came to no conclusion about precisely how it happened.
• Ten months after the federal government helped GM emerge from bankruptcy, the company reported its first quarterly profit since 2007. That could move the automaker one step closer to eventually issuing an initial public offering (IPO) to repay its debt to the government.
• The Mortgage Bankers Association said the pace of home foreclosures showed signs of leveling off in the first quarter. Serious delinquencies–at least 90 days overdue or in the foreclosure process–were down from the previous quarter, though the association said it was unclear whether that represented genuine improvement or a seasonal phenomenon. The percentage of loans in foreclosure was at a record high of 4.63%.
• The Conference Board’s Index of Leading Economic Indicators fell for the first time in more than a year. It was down 0.1% in April, though the measure of current economic activity was up 0.3%.

Eye on the Week Ahead

As traders assess whether last week’s tumble was a sign of things to come or a buying opportunity after a year-long rally, international developments will likely continue to affect trading. Economic data may suggest the extent to which the domestic recovery is surviving the global anxiety.

Key data releases: Home resales (5/24); home prices (5/25); durable goods orders, new home sales (5/26); revised gross domestic product (GDP) (5/27); personal income/spending (5/28).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

Market Week: May 17, 2010

The Markets

The Dow gained back almost all of last week’s losses in a 400-point rally on Monday after a European bailout package was announced. Despite giving back roughly half that gain at week’s end, U.S. equities still managed to squeak back into positive territory for the year, led by the small caps. However, global equities continued to suffer from fears of default and the possibility that the austerity measures needed to fight budget deficits might hamper global recovery. As a result, gold surged to a record high and the dollar hit its highest level against the euro since fall 2008.

We remain optimistic on the equity markets longer term; however, a short term trading high may have been put in place in late April. There has been a significant recovery since the so called “Flash Crash,” but the broad indices have been unable to attain their previous levels. In addition, trading has been characterized by light volume and significant intraday volatility. With this in mind, we feel it prudent to be cautious in the near term.

On the equities side, we favor the Health Care, Technology, Consumer Staples and Consumer Discretionary sectors. On the commodity side, we remain bullish on Precious Metals (specifically Gold and Silver) and the US Dollar against most major currency pairs.

Market/Index	2009 Close	Prior Week	As of 5/14	Week Change	YTD Change
DJIA	10428.05	10380.43	10620.16	2.31%	1.84%
NASDAQ	2269.15	2265.64	2346.85	3.58%	3.42%
S&P 500	1115.10	1110.88	1135.68	2.23%	1.85%
Russell 2000	625.39	653.00	693.98	6.28%	10.97%
Global Dow	1984.48	1823.64	1852.23	1.57%	-6.66%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.45%	3.44%	-1 bps	-41 bps

Last Week’s Headlines

• The Securities and Exchange Commission announced that exchanges had agreed to “a framework” for strengthening circuit breakers designed to prevent events such as last week’s “flash crash.” However, no formal explanation for the dramatic drop has been made public, though investigators are said to be looking at trading in S&P 500 futures contracts and some firms’ decision to temporarily halt high-frequency trading systems during the chaos, thus preventing them from making a market.
• Broad-based gains in manufacturing drove up U.S. industrial production 0.8% in April, according to the Federal Reserve Board. The Department of Commerce said April was the U.S. manufacturing sector’s best month since June 2004, expanding for the ninth straight month. Construction spending in March also was up by 0.2%, mostly on nonresidential public projects such as roads.
• The U.S. trade deficit reached its highest level since December 2008, expanding 2.5% in March, according to the Department of Commerce.
• Retail sales were up 0.4% in April from the month before, according to the Census Bureau, and up 8.8% from a year earlier.
• Productivity rose during the first three months of 2010, though the 3.6% productivity gain was less than the previous quarter’s 6.3%. The productivity gain more than offset a 1.9% increase in hourly compensation, according to the Bureau of Labor Statistics. As a result, unit labor costs for nonfarm businesses–one indicator of whether inflation is heating up–declined 1.6%.

Eye on the Week Ahead

Wednesday’s deadline for Greece to repay €8.5 billion in debt will dominate traders’ attention, though any upward movement in inflation data also could have an impact.

Key data releases: Treasury international capital flows, housing market index (5/17); wholesale inflation, housing starts (5/18); consumer inflation, Greek debt repayment deadline (5/19).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

Market Week: May 10, 2010

The Markets

Investors who were waiting for a correction finally got it–in spades. The equities markets’ wild rides on Thursday and Friday left the Nasdaq down 10.5% from its April 23 high–official correction territory. Thursday’s nearly 1,000-point intraday plunge in the Dow and Friday’s whiplash volatility wiped out all 2010 gains for the three major domestic indexes. Only the small-cap Russell 2000 was left in positive territory year-to-date despite taking the week’s biggest hit and being down almost 12% from its late-April high. The Dow industrials have suffered the least from the carnage of the last two weeks (down 7.4%), while the S&P has dropped 8.7% in the same time.

Strong profit reports and an unexpectedly high nonfarm payrolls number (see below) were virtually ignored in the face of heavy selling triggered by concerns about another potential global credit crisis. And that doesn’t even count Thursday’s psychotic break, when something–human error? high-frequency automated selling? computer glitch? some combination?–sent even the most stable stocks plummeting during minutes that brought back queasy memories of the fall of 2008. Trades placed between 2:40 p.m. and 3 p.m. Thursday that were more than 60% up or down from the last price at or before 2:40 were cancelled by the Nasdaq and New York Stock Exchange, and the Securities and Exchange Commission and stock exchanges are investigating the cause of the chaos.

The waves of global fear sent investors to seek the comfort of Treasuries; prices rose as the yield on the 10-year note dropped sharply, and the euro hit its lowest level against the dollar in 14 months. Oil also fell below $75 on concerns that European banks might stop lending, thus slowing global economic recovery. However, eurozone finance ministers agreed in an emergency weekend session to a massive $955 billion bailout package of loans and loan guarantees designed to be a firewall against the need to restructure sovereign debt across the European Union (EU).

Despite last week’s tumultuous markets, we continue to remain bullish in the near term. Markets clearly favor the European Union’s bailout of Greece; however, a significant amount of market strength is likely due to short covering. The strength and duration of the current rally will set the stage for the remainder of the year. Longer term, we are cautious and cognizant the market may have seen the high for the year and there remains the risk of a more significant correction. As far as specific industry groups, we remain bullish on Precious Metals (Gold and Palladium), Banks, Casinos & Gaming, Homebuilding, and Retail.

Market/Index	2009 Close	Prior Week	As of 5/7	Week Change	YTD Change
DJIA	10428.05	11008.61	10380.43	-5.71%	-.46%
NASDAQ	2269.15	2461.19	2265.64	-7.95%	-.15%
S&P 500	1115.10	1186.68	1110.88	-6.39%	-.38%
Russell 2000	625.39	716.60	653.00	-8.88%	4.41%
Global Dow	1984.48	1992.64	1823.64	-8.48%	-8.10%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.69%	3.45%	-24 bps	-40 bps

Last Week’s Headlines

• Nonfarm payrolls saw their biggest increase in four years; 290,000 jobs were created in April, and only 66,000 were temporary census workers. However, the new hiring wasn’t strong enough to absorb the 805,000 job seekers entering or re-entering the labor market on signs of recovery, according to the Bureau of Labor Statistics. As a result, the unemployment rate went from 9.7% to 9.9%.
• In addition to the EU bailout agreement, the European Central Bank reversed a decision earlier in the week and announced it will buy government and private bonds. The program, intended to backstop European banks and bond markets, is similar to moves adopted by the Federal Reserve in 2008 to combat the credit crisis here.
• American incomes as a whole rose in March, but American spending rose almost twice as fast. According to the Bureau of Labor Statistics, incomes were up 0.3%, while spending increased by 0.6%. And saving? Down 0.8%, to an annual rate of 2.7% of income.
• April was the U.S. manufacturing sector’s best month since June 2004, expanding for the ninth straight month. The Department of Commerce said construction spending in March also was up by 0.2%, mostly on nonresidential public projects such as roads.
• Productivity rose during the first three months of 2010, though the 3.6% productivity gain was less than the previous quarter’s 6.3%. The productivity gain more than offset a 1.9% increase in hourly compensation, according to the Bureau of Labor Statistics. As a result, unit labor costs for nonfarm businesses–one indicator of whether inflation is heating up–declined 1.6%.

Eye on the Week Ahead

Investors will be digesting the global ramifications of the EU bailout program, and anything definitive on the exact cause of last week’s dysfunctional trading could move markets.

Key data releases: International trade (5/12); retail sales, industrial production (5/14).

Recommendations are not suitable for all clients. Please contact us to discuss specific investments mentioned in this report.

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).

Market Week: March 22, 2010

The Markets

After eight straight up days, the Dow finally caught up with the other domestic indexes in reaching a new year-long high. Only the small cap Russell 2000 slipped last week, though trading volume was once again lackluster and all of the indexes stumbled slightly on Friday.
With the broad indices making new 18 month highs, the bulls seem firmly in control of this market. The one sign of worry is the lack of participation as measured by trading volume. I suspect the market will continue higher, however, as investors who remain on the sidelines put cash to work for fear of missing any further move. In addition, short sellers suspicious of this market must continue to cover their positions to minimize losses. The combination of high investor cash positions and short sellers covering will likely fuel the market higher even if participation is remains below average.

Market/Index	2009 Close	Prior Week	As of 3/19	Week Change	YTD Change
DJIA	10428.05	10624.69	10741.98	1.10%	3.01%
NASDAQ	2269.15	2367.66	2374.41	.29%	4.64%
S&P 500	1115.10	1149.99	1159.90	.86%	4.02%
Russell 2000	625.39	676.59	673.89	-.40%	7.76%
Global Dow	1984.48	1989.34	2001.01	.59%	.83%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.71%	3.70%	-1 bps	-15 bps

Last Week’s Headlines

• A crucial vote in the House of Representatives moved the hotly debated health care reform bill closer to a Presidential signature that could come as soon as this week.
• Industrial production was up only 0.1% in February. That was much lower than January’s 0.9% increase, but the Federal Reserve Board attributed at least some of that decline to bad weather in the Northeast and South. Even so, production was up 1.7% from a year ago, though the nation used slightly less of its manufacturing capacity (72.7%).
• February’s blizzards also sidelined residential builders. Fewer new projects in the South (down 15.5%) and Northeast (-9.6%) helped cut housing starts nationwide by 5.9% from the previous month. The biggest decline was in multifamily housing, the U.S. Department of Commerce said; starts of buildings with five or more units fell 43.1%.
• The Federal Reserve Board’s Open Market Committee left its target interest rate stable and gave no indication of changing its intention to end its purchases of mortgage-backed securities by the end of the month.
• Inflation at the wholesale level dropped 0.6% in February from the month before, led by lower energy prices. However, the Producer Price Index was up 4.4% year over year, according to the Bureau of Labor Statistics. Meanwhile, February’s Consumer Price Index (CPI) was unchanged from January, putting the annual inflation rate at 2.1%. Excluding volatile food and energy prices, annual consumer inflation was at its lowest level (1.3%) since this time six years ago.
• The Conference Board’s Index of Leading Economic Indicators was up 0.1% in February. That’s its 11th straight increase, though the rate of improvement has begun to moderate.

Eye on the Week Ahead

As the end of the quarter next week draws near, institutional investors will begin fine-tuning their portfolios. Also, investors doubtless will assess the impact of the health care bill vote on companies in industries such as insurance, health care and pharmaceuticals.

Key data releases: Home resales (3/23); new-home sales, durable goods orders (3/24); final Q4 GDP (3/26)

Market Week: March 8, 2010

The Markets

Back to black: Domestic equities clawed their way back into positive territory for the year, with small caps continuing to lead the way. A lackluster week with continued light volume finished strong with a 122-point jump in the Dow and the sixth straight up day for the S&P 500. Bond investors took heart from strong demand for an auction of Greek bonds.

Market/Index	2009 Close	Prior Week	As of 3/5	Week Change	YTD Change
DJIA	10428.05	10325.26	10566.20	2.33%	1.32%
NASDAQ	2269.15	2238.26	2326.35	3.94	2.52%
S&P 500	1115.10	1104.49	1138.70	3.10%	2.12%
Russell 2000	625.39	628.56	666.02	5.96%	6.5%
Global Dow	1984.48	1891.56	1960.23	3.63%	-1.22%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.61%	3.69%	8 bps	-16 bps

Last Week’s Headlines

• Despite expectations that February’s dismal weather might also mean dismal unemployment figures, unemployment remained at 9.7% in February. The 36,000 jobs cut from nonfarm payrolls was a far cry from last year’s triple-digit job losses, and hiring of temporary workers continued to increase. However, about 4 in 10 unemployed workers have been out of work for at least 27 weeks.
• Consumers opened their wallets a bit more in January. Personal spending was up 0.5%, though incomes rose only 0.1% during the month. At least some of that increased spending was the result of higher prices; personal consumption expenditures, including food and energy costs, were up 0.2% in January.
• Manufacturers remained in growth mode in February. Though the Institute for Supply Management’s index of manufacturing activity fell slightly, it remained above 50 for the seventh straight month–a level that indicates expansion. Meanwhile, services sectors grew at the fastest pace in more than two years.
• Construction spending fell 0.6% in January. A 1.1% increase in residential construction project spending was offset by a 1.4% drop in commercial projects.
• U.S. business productivity in the second half of 2009 was even higher than previously estimated. Nonfarm businesses increased their output by 2.5%, in part because the total number of hours worked by the labor force fell. Labor costs dropped 1.7% in 2009, the biggest annual decline since the Bureau of Labor Statistics began keeping records in 1948.

Eye on the Week Ahead

With little economic data to digest, investors will be trying to sort out whether last week represented a pause in the pain or a renewal of the rally that began a year ago Tuesday.

Key data releases: International trade (3/11); retail sales (3/12).

Market Week: March 1, 2010

The Markets

Stocks struggled to stay afloat during a week of largely disappointing economic data. The small-cap Russell 2000 was the only major index left in positive territory for the year. Doubts about European debt continued to plague international equities. That helped drive increased interest in U.S. Treasury bonds, whose prices rose as yields fell.

Markets are higher Monday morning as expectations that an EU Greek bailout plan is taking shape. This could provide fuel for a significant market rally in the coming days and weeks.

Market/Index	2009 Close	Prior Week	As of 2/26	Week Change	YTD Change
DJIA	10428.05	10402.35	10325.26	-.74%	-.99%
NASDAQ	2269.15	2243.87	2238.26	-.25%	-1.36%
S&P 500	1115.10	1109.17	1104.49	-.42%	-.95%
Russell 2000	625.39	631.62	628.56	-.48%	.51%
Global Dow	1984.48	1893.58	1891.56	-.11%	-4.68%
Fed. Funds	.25%	.25%	.25%	0 bps	0 bps
10-year Treasuries	3.85%	3.78%	3.61%	-17 bps	-24 bps

Last Week’s Headlines

• New home sales plunged 11.2% in January compared to December and were down 6.1% from January 2009. Though revisions and statistical errors can distort the numbers from month to month, it’s the third consecutive monthly decline, and the lowest monthly level of new home sales since the Commerce Department began keeping records in 1963. Sales of existing homes also fell 7.2% in January.
• Gross Domestic Product in Q4 2009 actually grew 0.2% more than the original estimate of 5.7%.
• The SEC voted to adopt an alternative uptick rule, which would curb short selling in a stock once it has fallen 10% in intraday trading. The new rule, which will go into effect 60 days after publication in the Federal Register, requires that once that circuit breaker has been tripped, any short sales for the rest of that day and the next must be executed at a price above the current highest national bid. However, the SEC stopped short of reinstating the original rule, which required all short sales to take place on an uptick.
• Home prices in the 20 cities tracked by the S&P/Case-Shiller index fell 0.2% in December, and were down 3.1% from a year earlier.
• After three straight months of increases, the Conference Board’s measure of consumer confidence dropped sharply in February, falling from 56.5 to 46.0–its lowest level since last April.
• Orders for civilian aircraft, which more than doubled in January, pushed up the month’s durable goods orders by 3%, the biggest increase since July. However, excluding transportation, orders fell 0.6%.
• Bond rating services threatened further downgrades of their ratings for Greek sovereign debt. The financially troubled country is struggling to balance the need for budget cuts with public protests against them.

Eye on the Week Ahead

Bond investors will be watching an auction of 10-year bonds in Greece in light of the threatened rating downgrade. Friday’s unemployment numbers are likely to once again be key.

Key data releases: Personal income/spending, manufacturing, construction spending (3/1); pending home sales, productivity (3/4); unemployment/nonfarm payrolls (3/5).

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