How high will the Stock Market go? By Ken Mahoney
www.thesmartinvestors.com
In last week’s commentary, we discussed the fact that a strong earnings season could provide welcome support for the markets, and so far, things are certainly shaping up that way. As of Friday’s close, 172 of the S&P 500’s companies had reported earnings, 83% of which beat analyst expectations according to Thompson Reuters. Capping off the week was also a refreshing announcement from the Commerce Department showing that sales of new homes in the U.S. posted their largest year-over-year increase in nearly 5 years. The combination of strong earnings and positive housing data led the Dow to its highest close since September 19th, 2008, and its 8th straight week of gains. The Nasdaq was also up for its 8th consecutive week, closing 2% higher. The S&P which fell last week after news of the charges against Goldman Sachs Group, Inc., also climbed 2% for the week and ended at 2,530.15.
While the recent weeks of gains have been modest, the trend of steady incremental advancement is much healthier than the volatile ups and downs we experienced earlier in the year. Instead of jumping in and out of the markets based on media hype, investors seem to be more focused on earnings, buying companies that are performing.
In consideration of the powerful rally we’ve been experiencing, some analysts insist that the market is overbought and getting ahead of itself. If we are due for a pullback as some predict, it is unlikely to happen next week – the 2nd ‘peak week’ of the earnings season with 164 companies set to report. Either way, we’ll stay focused on what’s happening and adjust quickly to any shift in current market conditions.
Key things we’ll be watching this week:
Tuesday – S&P Case-Shiller Home Price Index, Consumer Confidence
Wednesday – EIA Petroleum Status, FOMC Meeting Announcement
Thursday – Jobless Claims, EIA Natural Gas Report
Friday – GDP Consensus, Consumer Sentiment
HEADLINES:
The $1billion fraud prosecution of Goldman Sachs boosts the White House’s case for US financial reform, which is hoping that fresh anti-Wall Street sentiment will push an overhaul in financial regulation through a deeply divided Senate this week. Political analysts say that the fraud case brought by the Securities and Exchange Commission (SEC) against Goldman came at a crucial time. Ethan Siegel of the Washington Exchange, which monitors Capitol Hill for institutional investors, says: "The SEC's announcement reminded the country of what it was so upset about with regard to the economic downturn - which was the egregiousness of the behavior of big financial institutions."
Sales of newly built homes shot up 27 percent in March – the largest monthly gain in nearly five decades – as mild weather and a lucrative tax credit pumped up demand for homes in all four regions of the country, according to federal data released Friday. The Commerce Department reported that new-home sales jumped to a seasonally adjusted annual rate of 411,000, reversing February's record low and far exceeding the expectations of many experts who track the industry.
As the 2008 financial crisis was developing, top Securities and Exchange Commission employees and contractors were using government computers on official time to view pornography, according to an SEC inspector general. The SEC's inspector general found that 33 employees or contractors violated commission rules and policies by viewing porn, according to a memo obtained Friday by MarketWatch.
The Federal Reserve is expected to increase interest rates in September. Morgan Stanley Chief Economist Richard Berner told Swiss twice-weekly Finanz und Wirtschaft in an interview published Saturday. "I anticipate a first hike in September. That's when inflation expectations will change," Berner said.
QUOTE OF THE WEEK:
“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett
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Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://www.guardian.co.uk/business/2010/apr/25/goldman-sachs-financial-reform-senate
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/23/AR2010042305180.html
http://www.marketwatch.com/story/inspector-sec-staff-watched-porn-during-crisis-2010-04-23
http://www.marketwatch.com/story/morgan-economist-sees-us-rate-hike-in-september-2010-04-24
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