The background evidence of the week was somewhat mixed and of the type that could always conjure the spin doctors of Wall Street to don the bear goggles. Make no mistake about it though, a decisive shift in investor psychology opted to embrace the bull at large, with the end result fresh multi-year and all-time-highs. For the five day period S&P500 ($
SPX) and NASDAQ Composite ($
COMPQ) are up 1.49% to 2.82% on sure signs of investor satisfaction.Aggressively lower energy prices certainly helped market bulls this week. It’s not always the case, as the relative weakness and potential earnings concerns over the ‘profit-engine’ of the energy complex (
XLE,
OIH) need to be ignored or used as the proverbial sacrifice fly, so that other sectors may prosper. That was the case this past week as Black Gold slid precipitously to two year lows. At the same time, the West Texas ETF (
USO) fell by -9% to fresh all-time-lows of 43.50 before closing off -6.69% at 44.63. Abnormally warm weather in the northeast, continued bearish build ups of inventories, further not-so-smart institutional monies rotations and trader skepticism over OPEC cuts all played a part in the action. Meanwhile, concern over the ‘price drilling’ being an actual harbinger of a weaker economy dissipated and lost favor with a giddy Wall Street and other data saying something else entirely. After a couple warnings curveballs thrown in the week prior, the official start to the Q4 earnings season was a bullish catalyst for the market. While it’s still too early to determine any type of trend, lowered expectations for Corporate America and a cautious investor mood have been countered by strong results and outlooks from the likes of Alcoa (
AA) and Genentech (
DNA). While the 22% growth seen in the third-quarter isn’t likely to be matched, bullish reactions to upside surprises thus far do suggest sufficient pessimism coming into the period. Now all Wall Street needs are 450-plus reports from the S&P500, to see if they’ve got it right.One place Wall Street seems certain it has it right is a rotation into large cap technology. An outsized 2.82% gainer and a second straight week of outperformance is a testament to that belief of value found, four plus years into the broader market’s Bull Run. However, as a further testament to a market still composed of stocks and obviously not tolerant of disappointments: sales warnings out of veritable tech names such as Tellabs (
TLAB), SAP (
SAP) and Advanced Micro (
AMD) were punished by investors. While the initial broader market concern / impact was shaken off each time and ultimately favored the “Buy, Buy, Buy!” routine, some canaries outside of the coal / energy mine have been spotted and possibly worth listening too. It also looks like Wall Street is in the mood to embrace strength outside of the corporate kind. Economic data this week contained potentially damaging information for bulls insistent of rate cuts. However, when all was said and done, the market reacted favorably to a stronger economy and one not in need of the Fed easing monetary policy. Friday’s much stronger-than-expected .9% retail sales increase solidified traders shift towards relief over an economy that’s showing more signs of bottoming without further intervention. In fact, some analysts feel the data could point to an upward revision for the Q4 GDP. The bond market is listening as well. Fed funds futures are pricing in almost no chance of a cut before May and treasury yields soared to their best levels in more than two months. The widely followed 10-Year closed at 4.77% and up 13 basis points on the week, but below the key 5% level and a point where another kind of market intervention might come into play.ON TAP THIS WEEKInvestors received an equal dose of high profile surprises and warnings last week, but all told the total count of less than a handful makes for a clean slate as earnings intensify this week. The holiday shortened work-week will have plenty of high-profile names in a myriad of industry groups. Currently, earnings expectations are riding low as Wall Street makes provisions for the end of thirteen quarters of double digit growth from the S&P500. That’s likely to happen, as much of that success was directly linked to the oil patch, which has lost more than a bit of its energy mojo. Financials, also a very heavily weighted group, will likely surprise to the upside as deal making and the capital markets have been benevolent overall. It’s anticipated though that much of what the market does in the coming weeks will be riding heavily on the current rotation into large cap tech and the NASDAQ. Investors won’t want to see further disappointments from that group with so much money now obviously betting on a confirmation of those actions. As mentioned prior, expectations for the Fed cutting rates before May are down to a near zero vote of confidence. The economic data of late has shown both a tightening labor market and enough resilience in the manufactured slowdown to keep interest rates on hold and possibly even nudged up if conditions persist. The current environment is taking place as well, in a market that’s seen hard declines in physical prices of underlying commodities. That means that should those prices firm, an additional force could also be at work, as to keep a rate cut out of the equation for 2007. The week is full of fresh data on both the inflation and growth fronts, so economic watchdogs should make sure to keep note of what’s on tap by looking at the schedule below. What does a rate cut or none offered actually mean to investors? The underlying theme that a reduction is good for the market will always have a home on Wall Street. However, the current popular vote—as evidenced by higher stock prices—is geared towards wanting an economic turnaround despite some concerns over higher price pressures. Until yields move to levels that are deemed attractive enough to pull the rug from under equities, Wall Street can apparently have its cake and eat it too.
TuesdayEconomic: NY Empire Index (20)Earnings: Ameritrade (
AMTD), Forest Labs (
FRX), US Banc (
USB), Wells Fargo (
WFC), Intel (
INTC), Linear Tech (
LLTC)
WednesdayEconomic: PPI & Core (.6%, .1%), Ind Prod & Cap Util (.1%, 81.8%), Weekly Crude, Beige BookEarnings: AMR (
AMR), Freeport McMoran (
FCX), Lennar (
LEN), JP Morgan (
JPM), Apple (
AAPL), Lam Research (
LRCX), Washington Mutual (
WM)
ThursdayEconomic: CPI & Core (.5%, .2%), Housing & Permits (1.575M, 1.510M), Weekly Claims (315K), Leading Indicators (.2%), Philly Fed (3.0)Earnings: Bank of NY (
BK), Continental (
CAL), Harley-Davidson (
HOG), Jeffries (
JEF), Knight (
NITE), Merrill (
MER), United Health (
UNH), Cap One (
COF), Cree (
CREE), IBM (
IBM), Molex (
MOLX), Xilinx (
XLNX)
FridayEconomic: Michigan Sentiment (92.0)Earnings: Amcol (
ACO), Citigroup (
C), General Electric (
GE), Motorola (
MOT), Schlumberger (
SLB), Suntrust (
STI), Satyam (
SAY), Johnson Controls (
JCI), Fastenal (
FAST)
Chris Tyler
Labels: AA, AAPL, AMD, AMR, CAL, DNA, FCX, INTC, JPM, LEN, LLTC, MER, OIH, SAP, TLAB, UNH, USB, USO, WFC, XLE
