Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Stock Market Recovery Rally Continues

Stock-Markets / Stock Markets 2010 Apr 27, 2010 - 01:21 AM GMT

By: Paul_J_Nolte

Stock-Markets

How creative do we have to be after eight consecutive weeks of a positive market to make this week more interesting than the last eight? Earnings continue to be a bit better than expectations, Greece is still trying to get funded and the economy is still bumping along. So with the so-so backdrop, why does the market continue to march higher? It is the only game in town! Short-term interest rates continue to be held near zero (we’ll hear more this week) as the Fed worries about the frailty of the economic recovery. Inflation, as reported last week, remains high, however much of the gain is in food/energy prices (the stuff we never buy!).


So one of the major questions facing the Fed this week and over the next few meetings will be reconciling the weak economy and higher headline inflation reports. Weak economic data still is showing in the housing market, even though the seasonally adjusted gain in sales was huge – mainly due to the expiring tax credit, which we saw last November. As the government tries to gracefully exit the various programs designed to prop up the economy, the major question on investors minds will begin to be answered: can the economy stand on its own two feet?

The market is and remains in overbought territory, meaning a correction can come out of nowhere and push the averages lower by at least 3-5%. At best, we are hoping for a frustrating sideways market to work off the excessive bullishness that has built up during the two-month rally. We are still expecting stocks to work higher through the summer months or at least until the Fed decides to pull back on their zero interest rate policy. Investors are beginning to feel as though they understand the rules of the game that is the stock market – anytime the markets decline for more than a couple of hours, begin buying.

The markets have increased an astonishing 71% of the time just since early February and the equity surrogate for the SP500 (SPY) has increased an amazing 27 times in the past 30 weeks. In fact, if Monday’s returns were deleted from the market returns since late September, the markets would have declined by just over 6% vs. the current gain of more than 15%, an indication of the persistent strength in the market (see:http://www.bespokeinvest.com/thinkbig/2010/4/20/tgim.html). Our call is for more of the same, until it ends! For a persistent decline to evolve, the markets would have to continue higher without the support of the majority of stocks, which is currently not the case.

The bond market will be dealing with the Fed meeting this week (expect more of the same) and the auction of 2, 5 and 7 year notes that could put upward pressure on rates to get them sold. So far, our model remains bullish and is indicating that conditions are right for a decline in bond yields in the weeks ahead. Given the Fed is likely to keep their zero rate policy in place, with comments very similar to past meeting (indicating the economy is still early in the recovery phase), we do not see pressure on rates to push them higher. While inflationary pressures seem to be building, much of it is focused on food and energy (remember $150bbl oil?), while many other facets of the economy struggle to generate pricing power. As long as the 10-year bond stays below 4-4.25%, we feel comfortable holding longer-term bonds.

By Paul J. Nolte CFA
http://www.hinsdaleassociates.com
mailto:pnolte@hinsdaleassociates.com

Copyright © 2010 Paul J. Nolte - All Rights Reserved.
Paul J Nolte is Director of Investments at Hinsdale Associates of Hinsdale. His qualifications include : Chartered Financial Analyst (CFA) , and a Member Investment Analyst Society of Chicago.

Disclaimer - 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.

Paul J. Nolte Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules