Commentary for the week ending 10-23-09

Markets closed the week lower as some volatility returned to the market. The Dow bounced around the 10,000 mark, making new 2009 highs on Monday, only to close down 0.2% for the week. The S&P 500 closed down 0.7% and the Nasdaq was lower by 0.1%.

So far, quarterly earnings have continued to beat estimates. A large portion of this outperformace can be attributed to cost-cutting (i.e.-layoffs) and further inventory reduction, as well as strong exports from multi-national corporations. We believe that remaining earnings releases will continue this positive trend.

A positive Leading Economic Indicator report (Conference Board Leading Indicators) was released Thursday, making this the 6th straight monthly increase. The leading indicators are a basket of 10 statistics that are helpful in forecasting economic activity in the future. Eight out of ten indicators increased this month, with the average workweek and building permits being the only laggers. Nonetheless, this is a positive signal for the market.

The week also saw Oil and Gold markets close near their highs for the year. Contributing to their rise has been the continued weakness of the dollar, as the easy-money policies of the U.S. have raised concerns of foreign governments. While the dollar is not in any immediate danger of losing its reserve status, it remains a concern that these discussions are occurring. We see the strength of the dollar continuing to weaken in the near future. The weak dollar does make our exports more attractive to foreign buyers, however. Unfortunately this short-term boost from dollar weakness can have negative long-term ramifications.

Next week we will see more earnings releases, as well as the 3rd quarter GDP numbers. Economists are predicting an over 3.5% gain in GDP, unfortunately aided by an increase in government spending. Remember, the 3rd quarter saw the cash-for-clunkers program, plus the $8,000 tax credit for first-time home buyers, amongst other stimulus spending. It will be interesting to see how this economy behaves once government support has receded.

Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. We believe that the cash on the sidelines will continue to push the market higher (The 'Technical Recovery' continues). We worry about the high unemployment and $80+ barrel of oil, both of which contribute to lower consumer spending.

We are still bullish (positive) on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.

Weekly Market Commentary