Daily Market Commentary

Another Strong Week On Wall Street

Friday, February 18, 2011
Stock Market Commentary:
Stocks were quiet on Thursday after jobless claims rose more than expected last week and the consumer price index (CPI), which is used to measure inflation, continued to rise last month. The benchmark S&P 500 is up 100% from its March 2009 low, and still about -14% off its all time high from October 2007. On average, market internals remain healthy as the major averages continue marching higher. The fact that the major averages bounced back sharply after a very brief pullback in January illustrates how strong this 25-week rally actually is.

Monday-Wednesday’s Action:

Stocks were relatively quiet on Valetine’s Day after China said its exports surged last month.  China said that exports vaulted +37.7% – more than double December’s rate  – to $150.7 billion. Stronger Chinese exports suggests consumer demand is rising as well. In the U.S., President Barack Obama proposed a budget that would cut the deficit by $1.1 trillion over the next 10 years. The White House said a$3.729 trillion budget in which the deficit rose to $1.645 trillion in fiscal 2011, then will fall sharply to$1.101 trillion in 2012.
The major averages slid on Tuesday after retail sales and U.S. homebuilder confidence missed estimates. After Tuesday’s close, Dell (DELL), the world’s second largest computer manufacturer said earnings and revenue easily topped estimates. This set the stage for a healthy rally on Wednesday. The news on the M&A front was also healthy as Sanofi-Aventis (SASY.PA) said it plans to acquire Genzyme (GENZ) for $20.1 billion in cash and activist investor Nelson Peltz’s Trian Group offered to acquire Family Dollar Stores Inc (FDO) for $55 to $60 per share in cash or $7.6billion.
Housing construction was mixed last month and remained at a very weak levels. Starts advanced while permits fell back. Elsewhere, the producer price index (PPI) rose which suggests inflation is accelerating. The headline number rose +0.8%, matching the median forecast. Core prices, which strip out food and energy, rose+0.5% which topped the Street’s estimate for a +0.2% gain. If inflation continues to accelerate, the Fed will have more pressure to raise rates sooner than expected. A separate report showed industrial production falling to 5.2% from 6.3% in December. At 2pm EST, the FOMC released the minutes of its latest meeting which largely reiterated their recent support for QE II.

Thursday & Friday: Stocks Edge Higher On Stronger Economic & Earnings Data

Before Thursday’s open, the Labor Department said initial jobless claims rose by 25,000 to410,000 last week which topped the Street’s estimate for a gain of 17,000. The Labor Department also released the seasonally adjusted consumer price index which rose by +0.4% last month from December. On a year-over-year basis, prices swelled 1.6% before seasonal adjustments compared to the same period in 2010. However, core inflation, which removes food and energy prices and is considered the Fed’s preferred measure of inflation, increased by +0.2%. The report also showed that the annual underlying inflation rate stood at 1.0% in January which is still under the Fed’s target for 2.0%. At 10AM EST, leading economic indicators showed the economy continued to grow and the Philly Fed survey surged to 35.9, easily topping expectations. Stocks were relatively quiet on Friday as investors digested the week’s impressive move.

Market Action- Confirmed Rally; Week 25 Ends

It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, the market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.

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