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Despite Doubts, Rally Continues - Week Ended 3/5/10
posted 03.08.2010 at 09:51 a.m. by steve
The first week of March was strongly positive to investors as the market rose in each of the 5 trading sessions. The broad S&P 500 advanced +3.10%. Large-cap stocks trailed their smaller-cap peers, easily seen by the difference between the Dow (large-cap) which rose +2.33% in the latest week; while the NASDAQ (more all-cap and tech) rocketed +3.94%. International equities have also trailed domestic in recent weeks. Worries abroad continue to weigh on those markets closest to the root issues, but have eased somewhat. And, economic data has improved lately as well, with data last week meeting/exceeding consensus expectations.
Last week was full of employment-related data. Early-week releases surprised expectations to the upside. They were especially welcome given the bad weather across the country during February (which typically negatively impacts employment and consumer confidence). The biggest news of the week was the Employment Report which showed that payrolls declined -36,000 in February. Prior months were also revised higher showing fewer lost jobs than previously thought; the unemployment rate remained stable at 9.7%. While those numbers sound unimpressive (and Harry Reid will likely regret being put on the record saying Friday was a day Americans should celebrate), the number was dramatically better than expected and implies we are not far off from seeing payroll growth. Less significant last week, but still important was that housing sector data also rebounded after weeks of very sluggish numbers.
With the economic data again trending favorable and international worries easing, it is important to note that the recent stock market advance has occurred in the face of a still very skeptical audience. Bond funds continue to experience inflows at a breathtaking pace while stocks experience negligible amounts. It suggests that retail investors are tired of getting paid an almost-zero yield in money market accounts, but still do not view the current rally (now 12-months old) as a sustainable new bull market. That leaves open the possibility that this market continues to surprise everyone to the upside. There is lots of money that will feel pressure to chase performance as the length of the rally continues, keeping momentum alive. It will be interesting to see if the first week of March can continue its upward trajectory; with the S&P back above early-year support, we think it can.