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Dow Regains Positive Territory for 2010 - Week Ended 7/23/10
posted 07.26.2010 at 09:41 a.m. by steve
Despite a week full of disappointing data on the housing sector and almost no other economic news domestically, US stocks enjoyed positive performance in four of the five trading sessions. The S&P 500 rose +3.55% in the week while the Dow and NASDAQ managed to get back to their break-even levels for 2010. Better than expected earnings seemed to be the primary catalyst, as several key companies not only met or exceeded forecasts, but issued more optimistic guidance for upcoming quarters as well. In particular, shipping company UPS suggested that commerce may be picking up, while Ford noted strong sales and that it expects to be debt free by the end of 2011. In addition, European economies posted figures that surprised analysts to the upside. Among those items, we learned that the UK grew at its fastest pace in four years while Germany and Italy released data indicating that confidence and sentiment regarding their economic outlook is improving.
When reflecting on last week, it seems as though there was actually more news from Europe than here domestically. Also announced were the results from the European bank stress tests. Highly anticipated, the report showed that 7 of 91 banks failed and they would need to raise additional capital. Ultimately, the results were of little to no impact on the markets. Meanwhile, there was news from US companies, suggesting that pressure is growing for idle cash to be deployed to more productive uses. GE announced a special dividend, and there was speculation over a Genzyme takeover on Friday. Investors should be encouraged as it would show that companies may be feeling that it is time to open up the corporate wallet and think about improving/expanding their businesses rather than having a mountain of cash sitting idle and being uber-conservative. Said another way, if businesses begin to spend down the huge mountains of money acquired in the last 18 months for capital improvements, starting new ventures and marginally expanding workforces, jobs may begin to return at more rapid pace and the economic recovery could gain stability.
This week the economic calendar is busy. Most watched will be consumer confidence, durable goods orders, jobless claims and more housing-related data. Perhaps the most anticipated report of the week will be the initial estimate for 2Q GDP due on Friday. Economists are looking for +2.5% and would also like to see improvement in final sales (not just inventory re-stocking).