As the economic reports fade to the background, corporate earnings shift to the foreground to take their spot in the sun. While not nearly as dramatic as say, Gone With the Wind, the shift in focus has impact upon how investors react to news events. The reports from the technology sector have been generally upbeat, however comments regarding the future are much darker, taking many of the stocks lower. However, their impact has not been felt market wide as would an employment report or a wider than normal inflation release. The shift to “micro” or company specific from “macro” or economic wide may allow the markets to rest a bit further, digesting gains of the past six months. The next two weeks are the heaviest reporting weeks and once past, the macro views will once again take center stage. Little has changed in the past week that indicates that the economy has once again regained a firm hold on a growth trajectory, but like the stock market, may be taking a breather from the spate of poor news during the fourth quarter. The Fed will be standing aside for as long as necessary, which should allow market participants to determine whether they “frankly (my dear, I don’t) give a damn”!

Like a child that has run too far ahead for their own good, the OTC market got reprimanded last week and has regained the herd for year to date performance. Not helping the technology indexes were comments from the industry leaders: Apple, Intel and IBM indicating that business, although good today, may not be so 6 months from now. While the bulls and bears have been battling to gain the upper hand, the markets have frustrated both and until a clear winner has been determined, we are likely to stay with our current investments. We are seeing some deterioration in the OTC figures, however not yet enough to warrant an outright sell. Further has been the shift of assets away from funds “shorting” the market (betting on a decline). So while few are betting on a decline, many are using options to hedge portfolios from a large market break. The contrast between the two has been emblematic of the markets over the past six weeks – much ado about nothing. We are watching the range bound market between 1400 and 1440 and figuring on a decline back toward 1400, however a run higher will force us back in.

While the stock market has been a model of consistency (small moves in either direction, stead up trend for six months), the bond market has been all over the place: figuring on a rate cut in the first quarter at least three times over the past six months and wiping that guess out another three times. The only consistent part of the bond market has been the inversion between short rates (higher) than long-term rates. Our bond model continues to point to higher rates ahead with a “1” reading, however the gold market, usually a beneficiary of this environment, can’t make headway either and has dropped more than 6% during the negative bond readings. 

© 2007 Paul J. Nolte, CFA
Editorial Archive

The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable, but are opinions and do not constitute a guarantee of present or future financial market conditions.

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Paul J. Nolte, CFA
Director Investments
Hinsdale Associates
630-325-7100
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