Tuesday, August 24, 2010

J.L. Davis Market Update 8/23/2010

QUOTE OF THE WEEK:
“Life is like riding a bicycle. To keep your balance you must keep moving”. - Albert Einstein

THE MARKETS:

Stocks faced another choppy week as concerns surrounding employment and slow economic growth combined with low trading volume to send indexes lower. For the week, the Dow shed 0.9% and the S&P 500 slid 0.7%. The Nasdaq managed a scant 0.3% gain.

Even as a stellar earnings season draws to a close, strong corporate balance sheets haven’t been enough to bolster the faltering optimism of investors. Of the 484 companies in the S&P 500 that have reported so far, 75% have beat expectations according to Thompson Reuters (compared with a quarterly average of 62%). Despite this silver lining, the S&P 500 has lost about 0.1% since the beginning of earnings season on July 12th.

Thursday saw an unexpected jump in the number of first-time filers for unemployment benefits when the Labor Department reported that jobless claims rose to 500,000 in the previous week – the highest level in nine months. When combined with the downward revision to the second-quarter GDP, this spike in unemployment claims was a one-two punch to the gut of investors. Add uncertainty about the future of the Bush tax cuts, the direction of interest rates, and details about how financial regulatory reform will play out, and investors are a bundle of nerves.

So have all the optimists died? No. In fact, a number of industry insiders still have conviction that things are headed in the right direction – albeit slower than expected. Channing Smith, co-manager of the Capital Advisors Growth Fund commented to MarketWatch on Friday that the backdrop for the market is very attractive because of low interest rates, benign inflation and a good earnings season. James O'Sullivan, chief economist at MF Global, believes the recent weak data is a "mini-cycle within the cycle" and not a double-dip recession. And even Treasury Secretary Timothy F. Geithner said on NBC’s “Meet the Press” just a few weeks ago that, “The most likely thing is you see an economy that gradually strengthens over the next year or two.”

Like it or not, equity investors seem stuck with a market that is trading more on headlines than on fundamentals. At times like this, it’s almost always better to tune out the noise and avoid knee-jerk reactions.

Key things to watch this week:
Tuesday – Existing Home Sales
Wednesday – Durable Goods Orders, New Home Sales
Thursday – Jobless Claims
Friday – GDP, Consumer Sentiment

HEADLINES:

Iranian President Mahmoud Ahmadinejad introduced the country's first domestically built drone bomber on Sunday at a ceremony attended by top military officials. The drone, dubbed the Karrar - or "striker" – is credited by State media as capable of carrying out long-range attacks up to 620 miles, while carrying a 450 pound bomb. President Ahmadinejad called the Karrar a symbol of death to Iran's enemies.

Two Iowa farms that together recalled more than half a billion potentially tainted eggs this month share close ties, including suppliers of chickens and feed. Both farms are linked to businessman Austin "Jack" DeCoster, who has been cited for numerous health, safety and employment violations over the years. DeCoster owns Wright County Egg, the original farm that recalled 380 million eggs Aug. 13 after they were linked to more than 1,000 reported cases of salmonella poisoning.

A major figure in the project to build an Islamic center and mosque near ground zero in New York City said Sunday that moving the project to another site is not under consideration for now. Daisy Khan, who is heading the development of the project with her husband, told ABC's "This Week" that a move could be considered after consultations with "all major stakeholders" take place.

BP said Saturday that it has begun an attempt to remove the drilling pipe from the ruptured well that unleashed the Deepwater Horizon spill. The attempt, which began Saturday morning, follows the successful completion of a 48-hour ambient pressure test, in which the company determined that if the sealing cap and the blowout preventer that sit atop of the well are removed, no oil or gas will come out. BP aims to remove 3,500 feet of drilling pipe before it can proceed to remove the blowout preventer and replace it with a new one.

New rules designed to protect credit card users from "unreasonable late payment and other penalty fees" come into force Sunday as a result of the Wall Street reform bill. The rules block credit card companies from charging more than $25 for late payments except in extreme circumstances, prevent them from charging customers for not using their cards, and requires them to reconsider rate increases imposed since January 1, 2009, according to the Federal Reserve, which approved the regulations.

Sources:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money
http://www1.voanews.com/english/news/Iran-Shows-Off-Unmanned-Long-Range-Bomber-101251954.html http://www.google.com/hostednews/ap/article/ALeqM5hOgpXZfEFJ7kkmSW5TIXjlsuUxPQD9HOI6UG0 http://www.cnn.com/2010/US/08/22/islamic.center.khan/ http://online.wsj.com/article/SB10001424052748703461504575443603224778836.html http://money.cnn.com/2010/08/22/pf/credit_card_rules/index.htm

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These are the views of Platinum Advisor Marketing Strategies, LLC, not necessarily those of J.L. Davis or Multi Financial Securities Corporation, and should not be construed as investment advice (neither of whom gives tax or legal advice). All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

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