Summer Sun Beats Down on Wall Street

By: Paul_J_Nolte

One good day in the equity markets covered an otherwise listless week as investors get a jump-start on the summer doldrums. While exciting, the 200+ point Dow rally did push the averages above some critical overhead resistance that needs to hold in the coming weeks to be genuinely an important change in psychology. The drama for the week was putting the CEO of BP in front on Congress to explain the company’s response to the spill.

Very little information is provided, but it does provide for some interesting theater. The ending of the quarter usually means a slowing in economic data, the beginning of “confession” season (when companies not likely to meet earnings estimates confess the shortfall) and a generally lethargic market. The coming week will focus on housing data with existing and new home sales reports. Given the very poor housing starts and confidence numbers of the past week, the reports this week are likely to also be weak. Finally, the Fed will be reprinting their comments on the economy from their last meeting as they weigh in on changes to their interest rate policy (none expected). The summer itch for vacations in Washington is starting early this year.

Outside of the one-day 200-point rally in the Dow, the remainder of the week provided little direction and even smaller volume figures for investors to discern overall market direction. Volume figures did rise on the day after the big jump, however more stocks traded down than up, a continuation of the “normal” market behavior over the past nine months. One saving grace is that the major averages have made it above their respective 200-day average closing values, a sign that the longer-term trends are rising. In fact, a few asset classes have too pushed above their long-term trends during the past week, including real estate and emerging markets – both of which have been very volatile over the past few months. While the SP500 did get above our highlighted 1100 level last week a decline back toward 1100 can not be ruled out (as a test of market strength) before climbing back toward the April highs.

Little has changed in the bond market, the US treasury remains the investment of choice, pushing yields ever lower, while investors shun corporate and global bonds, widening the spread between treasuries and other bonds. The changes in the spreads are direct indications of the amount of fear investors have regarding riskier investments. We highlighted last week the spread between Treasuries and the London rate (LIBOR) as well as high yield (junk). Although they declined some last week, the “new” trend will have to develop before we can accept the fact that risk is back in the market. For now, the bond model is still pointing to lower rates ahead with the only non-conforming portion of the model being commodity prices.

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.

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.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.