Tuesday, May 10, 2011

J.L. Davis Weekly Market Update 5/9/2011

Quote of the Week:
“Spring is nature's way of saying, ‘Let's party!’”
Robin Williams

It’s a wonderful time of year to reflect a bit on just how beautiful the world can be, especially in Colorado, and, it turns out, in California.

Friday morning was crisp and clear for my visit to San Diego for an educational conference. I entered the room a bit early, as usual, for the upcoming session and noticed a familiar, very impressive man sitting a couple of chairs over. It wasn’t hard; we were the only two in the room. So I met, shook hands, and chatted with Chris Gardner. You’ll remember Chris’ story from the film “The Pursuit of Happyness”, starring Will Smith. I was attending an educational conference…but Mr. Gardner really educated me during our chat, and later, when he delivered his keynote address.

Chris is one of my heroes. His incredible determination to provide for his son, while homeless was the reason, or so I thought. It turns out after having heard the whole story that was the least of it. Mr. Gardner survived a childhood that would make anyone cringe; the sudden disintegration of a marriage; a lack of formal education; a steady stream of “No” in his occupational efforts; and much, much more. All he did was continue on. Continue on to a magnificent career and charitable efforts that will quite likely change the lives of thousands. He’s still going, accomplishing more every day. Impressive.

Speaking of impressive, the markets continue to please, at the moment, however fleeting.**


The Markets

A higher than expected jobs creation figure couldn't entirely rescue domestic equities from the slump they experienced earlier in the week. On the one-year anniversary of last year's May 6 "flash crash," the Dow was up roughly 20% from its May 6, 2010, close. However, commodities weren't so lucky last week. Leading to hope for relief at the pump, spot oil prices fell below $100 a barrel, while gold fell back under $1,500 an ounce. And in just over a week after hitting almost $50 an ounce, the spot price of silver dropped more than 20% when CME Group repeatedly raised silver margin requirements to try to curb speculation. Investors sought reassurance in the arms of Treasury bonds; the 10-year yield dropped as prices rose.


Last Week's Headlines


  • Even though businesses added 244,000 jobs in April--the largest number in almost a year--the unemployment rate nudged upward from 8.8% to 9% during the month. That's the first increase since November. The Bureau of Labor Statistics said jobs increased across a broad spectrum of industries, while government jobs declined and construction remained static.

  • U.S. manufacturers saw growth in April as the Institute for Supply Management (ISM) reported a reading of 60.4%. Though that was the 21st straight month of growth, it was slightly lower than the previous month's 61.2%. The ISM's service sector also grew at a somewhat slower pace in April, and its new-orders index for the sector fell more than 11%.

  • Construction spending in March fell 6.7% from the same month last year, and was down 7.8% during the first quarter from Q1 2010. However, the Commerce Department said construction spending did improve compared to February, and most of the 1.4% monthly increase was private construction.

  • Business productivity rose at an annual rate of 1.6% during the first three months of the year; compared to Q1 2010, it was up 1.3%. However, the labor force didn't see much benefit; the Commerce Department said that though the 2.6% increase in hourly compensation for the quarter outpaced the productivity gain, higher consumer costs meant that, adjusted for inflation, compensation actually fell 2.5%. That's the steepest quarterly decline in real compensation since Q3 2008.

Eye on the Week Ahead

Investors will be watching to see if the commodities selloff continues. If it does, it could help allay potential concerns about rising costs if Thursday's and Friday's inflation numbers are discouraging. Retail sales will provide a snapshot of the state of consumer wallets.


Key dates and data releases: import/export prices (5/10); international trade (5/11); wholesale inflation, retail sales, business inventories (5/12); consumer inflation (5/13).


Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Forefield Inc. Copyright 2011

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