Financial Sense Home l Broadcast l WrapUp l Storm Watch l About Us l Contact Us
|
NOLTE NOTES If at first you don’t like one company’s earnings – look for another that looks better. After the poorer than expected report from GE last week (primarily from their financial arm), this week saw much better reports from the likes of Honeywell, IBM, and Google. The common thread among all the earnings reports were the international exposure – the more they had the better they did. While GE does have international exposure, their earnings gains in that group were overshadowed by the financial troubles. Even companies like Citigroup that reported rather punk earnings and announced layoffs were rewarded with higher stock prices. The “big” inflation reports indicated that we shouldn’t worry about higher food/energy prices, as inflation is still plugging along at 2.5%-3% per year – in line with historical averages. Commodity prices, however, continued to rise and oil broke to new record highs as investors continued to pile into the inflation stocks. The coming week brings more reports on housing that should show a still weak environment and more earnings. The economic data really does not show a pick up in economic activity, however the lack of disasters in the financial sector is providing investors reasons to buy. This year, investors have to be happy with bits and pieces of good news and positive action when it comes their way, however while we have been happy with some of the improving market characteristics, there is a lot of room for improvement. For example, we have been happy with the better volume on advancing days vs. declining days, however (and there is always one!) overall volume has been well below average, indicating what excitement there is for stocks is very tempered. One indicator that has improved only modestly – and is nowhere near “breaking out” is on balance volume. This accumulates daily volume on advances and subtracts daily volume on declines – and even with better volume on the advancing days, this indicator remains near a low as average daily volume is 20-30% less than nearly anytime in the past three years. Also a concern is our daily momentum models that are pointing to a near-term top in prices. While never an absolute, it does a reasonable job of indicating when the markets might be ripe for at least a rest – and we are nearing that point. Until the SP500 clears the 1425-1450 range (now at 1390) with well above average volume, we are classifying the last few weeks as nothing more than a rally in an otherwise bear market. The “better” economic news and decent earnings reports have taken the steam out of the bond market as investors begin to “bet” on the Fed standing aside and no longer cutting rates. The long-dated maturities moved higher in yield and lower in price as investors moved from bonds to stocks. The higher commodity prices also hurt bonds. Interestingly, however is that the bond model remains in “buy” territory, indicating that yields are likely still to go lower. However, that could change soon, if short-term bonds back up in yield over 1.25% and long-term bonds stay above 4.3%. Save for a few weeks, the model has been on a “buy” since September, when short-term rates were around 4%. A backup in yields is expected, however we still maintain low rates remain in the future.
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.
CONTACT
INFORMATION |
