Weekly Market Returns..

For the week the NASDAQ advanced +1.4%, the S&P 500 +.8% and the DJIA +.7%

While the markets are still down year to date they have advanced strongly since mid April on evidence that stagflation (slowing growth & rising inflation) is not taking hold.

The key to that thesis is moderating energy prices, which, at least for this week, energy prices did not moderate.

Housing, Rates, conundrum...

The 64 (million, billion, trillion?) question is will Asian central banks always buy our treasuries to recycle their trade surpluses, no matter the yield?

To what end? A low yield bubble?

WSJ.com - Hedge Funds Nip at Wall Street

More Hedge Fund Hoopla, the other week bad GM trades were putting them under, this week they are taking Wall St out.

Baku-Ceyhan Pipeline Starts---Fresh Crude Oil for the West starting in the fall

Here comes another million barrels a day of crude supply to markets already well supplied.

Weekly Market Returns

For the week the markets posted solid gains with the NASDAQ up +3.5%, the DJIA +3.3% and the S&P 500 +3.1%.

Fears of stagflation gave way to optimism as the weeks inflation report indicated that core consumer prices are contained and inflation is not running away. Fears of inflation had been weighing on the markets and better news lifted sentiment.

As crude oil prices moderate , the risks for inflation should moderate.

Sell in May and go away?

Weekly Market Returns...

For the week the NASDAQ advanced .5% while the S&P fell -1.5% and the DJIA fell -2.0%

Energy and basic materials have fallen and these sectors lended support to the overall market. The NASDAQ was up on a good report from Dell, which helped the tech heavy NASDAQ buck the negative trend.

Oil prices continue to fall, which should lend support to the overall market. The market has a difficult time advancing when energy prices are rising significantly.

The markets are well supplied with Crude Oil, barring a disruption in supply in the middle east, Oil prices should moderate as inventories build. Easing energy prices would support the markets moving higher.

Earnings Growth...Large Value vs. Large Growth

Some interesting numbers to consider:

For the year April 2004 to April 2005 earnings growth on the S&P 500/Barra Growth is 21.14% and earnings growth on the S&P/Barra Value is 16.24%.

The performance of these two indices over the same period of time is drastically different than the performance of the fundamentals. For the same period of time the S&P 500/Barra Growth is up +2.95% and the S&P/Barra Value is up 6.22%, so there is a disconnect between the growth in earnings and index performance.

What gives? Simple, the P/E for the growth index fell more than the P/E for the value index. The growth P/E fell from 26.70 to 22.37, or 16.21%. The value P/E fell from 18.70 to 17.28, or 7.59%.

Over the same period of time the 10 year US Treasury fell in yield from 4.50% to 4.20%. Value stocks are more heavily leveraged to interest rates than growth stocks, the decline in yields protected the Value P/E somewhat from the contraction.

If Dr. Greenspan's "conundrum" is resolved and long rates move higher, watch out!

Source: Barra

Pew Research Center Political Typology

We try not to often diverge into politics on this blog believing our personal thoughts on what goes on in Washington should be confined to commentary on how these decisions affect the financial marketplace. This, however, was a fascinating study we heard on NPR, and it was interesting to see where our beliefs were on the spectrum. We've all been watching vastly different groups competing for the power within their own political parties, and this work asserts that to truly be the case. Also, as investment managers, it is our responsibility to monitor social trends that could affect future economic policy; so, we can justify a somewhat non-financial post every now and then.

Chart of the Month: Inflation

Summary Market Returns...

That's right folks, the five year average return for the S&P 500 is still negative. We have a long, long way to go before we make a new all time high in the S&P 500.

Weekly Market Returns...

The markets advanced for the third straight week, shaking off a downgrade of GM bonds to junk status and marginally higher crude oil prices.

For the week the Nasdaq advanced 2.4%, the DJIA 1.5% and the S&P 500 was up 1.3%.

The positive news for the week was the employment report, which indicated more job creation than was expected.


The markets are looking for signs of continuing growth and moderating inflation, and so are we...

US April Payrolls rise 274,000, exceeding forecast

The numbers I saw forecast were in a range from 150,000 to 190,000. Most pundits I have seen have been picking the low side of the number.

What is most heartening is the revisions to the prior numbers, higher. Initial Jobless Claims have been steadily under 350,000 since August of 2004, save for a week or two. Jobless claims less than 350,000 are usually consistent with robust labor conditions and finally borne out by this report.

Interest rates are low! Interest rates are low, has been the mantra of many owning financials and leveraging real estate. If March was just a soft patch and we string together a couple of months of robust Non-Farm Payrolls, Katie bar the door! The 10 year US Treasury will head higher just like today!

Survey Sez...

Fed Funds Futures indicate that the markets anticipate Fed Funds will be 3.75% by the end of the year.

It is hard to imagine just three more rate hikes over the balance of the year, but that is what the market expects!

What the *&^%!

The Federal Reserve of the United States issues a restatement of the monetary policy release.

Come again?

This is very hard to believe. If it has ever happened before I am unaware of it.

The release almost has to be a word document and not a fresh draft from scratch, as very little of the language has changed from month to month over the past couple of months.

Could it have been intentional? Very unlikely, but the language was there last month and it got deleted.

Very, very strange.

Some great advice...

Here is a succinct list of some really good advice regarding investing in individual stocks. We know a lot of people make decisions based on emotion rather than homework, and these rules are each worth considering if you are planning an investment. Just another thing to think about...

Weekly Market Returns...

It was an ugly week even though some of the broad averages battled there way back to the green. The market is grappling with signs of slowing growth and higher inflation.

For the week the S&P 500 was up .4%, the DJIA +.3% and the Nasdaq feel -.05%.

The question on everyone's mind is how hot is the Fed's battle against inflation? Are they going to raise rates until they steer us into a ditch?

One bright spot that the market didn't pay much attention to was the fall in the price of oil. The rise in inflation has corresponded with the rise in energy prices.

Moderating energy prices might = a moderating Fed.