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Second Week of Gains Puts Indexes Back in the Black for 2010 - Week Ended 6/18/10
posted 06.21.2010 at 09:00 a.m. by steve
Stocks behaved themselves for a second consecutive week, rising back above the level of the 200-day moving average (an important technical level). Stocks rose in 4 of the 5 trading sessions with the biggest advance occurring on Tuesday as indexes rose sharply by more than 2%. That helped the week end +2.37% for the broad S&P 500 (and returning indexes to positive territory for 2010), despite Greece being downgraded to junk status by Moodys (largely expected) and economic data that was generally worse than expected. Meanwhile, Gold managed to also make new highs in what has become a bet against fiat currencies rather than an inflation-hedge. Credit spreads (a key barometer of perceived risk between lenders and debtors) remain elevated from the favorable levels earlier this year, but stable in recent weeks. Still, without significant improvement in credit spreads (narrowing), many believe that the recent improvement in equity market behavior is only a short-term bounce from the extreme oversold condition that had developed during the month of May and early days of June. Uncertainty over the market remains however, as evidenced by the wide range of views by economists and varying forecasts present.
Economic data news was decidedly weaker in the latest week and one thing that has become readily apparent through watching of various data points is that the domestic economic recovery stands in sharp dichotomy. Manufacturing and industrial production are robust, while housing-related sectors are flat at best. Consumer sentiment as reported in the former week continues to remain resilient at favorable levels, but unemployment is stubbornly high according to weekly unemployment claim figures. In fact, unemployment claims rose in the latest week, suggesting that jobs remain a challenge to get. But, against a backdrop of weaker than hoped-for economic news, stocks did manage to behave themselves, suggesting that bears may have exhausted their selling pressure and bulls are once again taking control of daily moves. This week looks set to extend the recent market recovery, as China announced over the weekend an easing of its monetary policy which suggests a stimulative effect on its already fast growing economy. The biggest items on the economic calendar this week are existing home sales (likely to be weak), durable goods orders (expect strong) and the FOMC meeting announcement on Wednesday. Stay tuned!