Weekly Market Commentary

“Stocks Gain Driven by European News”
September 19, 2011
Up to date in less than 2 minutes:
Last week, U.S. stocks gained driving the Standard & Poor’s 500 Index to the third-biggest weekly gain since 2009, as government officials and central bankers took steps to ease the European debt crisis. On the week, the Dow, S&P 500, NASDAQ, and Russell 2000 all dropped -2.2%, -1.7%, -0.5%, and -1.4%, respectively.


Equity Performance Table
Last Week
Year to Date
Last 52 Weeks
Dow Jones Industrial
S&P 500 (Large Caps)
NASDAQ (Technology)
Russell 2000 (Small Caps)
International Stocks (EAFE)
Dow Jones Total Stock Market (Broad Market)



Interest Rates
Prime Lending Rate
Interest Rate Bias
Short-Term = Neutral; Intermediate Term = Neutral; Long-Term = Higher
90 T-bill Rate
90 Day LIBOR
TED Spread
30-Year Mortgage Rate
15-Year Mortgage Rate
5-Year Adjustable Mortgage Rate
30-Year Treasury Yield
10-Year Treasury Yield
5-Year Treasury Yield
2-Year Treasury Yield



Notable Dividend Increases – 2011
Lockheed Martin (“LMT”)
NextEra Energy (“NEE”)
United Technologies (“UTX”)
Proctor & Gamble (“PG”)
Abbott Labs (“ABT”)
Clorox (“CLX”)
Colgate Palmolive (“CL”)
Chevron Corp (“CVX”)
General Mills (“GIS”)
International Business Machines (“IBM”)
Union Pacific Corp (“UNP”)
Intel Corp (“INTC”)
McDonalds Corp (“MCD”)
Kimberly Clark (“KMB”)


Now, all the details……………………
Last week, the S&P 500 climbed +5.4% to 1,216.01, trimming its 2011 loss to -3.3%.  The Dow Jones Industrial Average increased 516.96 points, or +4.7%, to 11,509.09, leaving it down -0.6% year to date. “It looks like the various political leaders and finance leaders are getting together and working in a consorted fashion, which is what’s necessary to get through this situation,” Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a Bloomberg telephone interview. “The equity market is likely to move higher here, and I think we will see a rally by year’s end.” The S&P 500 climbed to the highest level since August 31 after European Central Bank President Jean-Claude Trichet pressed euro-area governments yesterday to take decisive action to halt the debt crisis.  Two days ago, the ECB bought more time by extending an emergency lifeline to banks, driving the week’s biggest advance in the stock market.  French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are convinced Greece will remain in the euro zone.
“Headlines from Europe are certainly driving the short-term direction of the market,” Peter Vanderlee, a money manager at ClearBridge Advisors, a unit of Baltimore-based Legg Mason Inc., said in a Bloomberg telephone interview.  Legg Mason manages about $640 billion.   “We don’t have a magic bullet for solving Europe’s woes, but against that backdrop, having a portfolio with companies that tend to be more quality-based, have international exposure, it dampens a lot of that volatility.”
Companies most-tied to the economy rallied last week, with the Morgan Stanley Cyclical Index advancing +5.5%.  Intel Corp. (“INTC”), Home Depot Inc. (“HD”) and General Electric Co. (“GE”) led gains in the Dow, increasing at least +8.2%. Technology shares rose the most among 10 S&P 500 industries, led by EBay Inc. (“EBAY”), the world’s largest online marketplace.  The shares climbed +18% to $33.69.  Dell, the second-largest personal-computer maker, added +8.8% to $15.20.  Dell added $5 billion to its stock repurchase program, citing a resurgence in cash flow.
“Valuations in that (tech) space are exceedingly attractive,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said during a September 16 Bloomberg Television interview.  “And of course we know that business investment and spending on software and hardware has been the one bright spot in terms of economic activity over the last couple of quarters.”
Technology companies in the S&P 500 index are trading at 12.3 times estimated 2011 income, according to data compiled by Bloomberg. That compares with the average price-earnings ratio using analyst estimates for the current year of 15.4 between March 9, 2009, when the bull market began, and April 29 of this year, when the S&P 500 peaked.
Netflix Inc. (“NFLX”), the mail-order and online film-rental service, fell the most in the S&P 500 after cutting its U.S. subscriber forecast following a price increase. Netflix slid -24%, the most since October 2004, to $155.19.
The MSCI EAFE Index (broad developed international index) rose +2.2% last week. The Americas rose +4.6% with Brazil up +2.6%, Mexico up +4.1%, and Canada down -1.0%. Europe rose +2.5% with Germany up +7.4%. Asia-Pacific dropped -0.4% with Australia down -1.1%, China down -0.6%, Hong Kong down -2.1%, India up +0.4%, Taiwan down -0.4%, and Japan up +1.5%.
Treasuries dropped in price with the 10 year yield rising to 2.05% from 1.92%.
The Baltic Dry Index, which tracks transport costs on international trade routes and may be a good leading indicator of economic activity, ended the week at 1,814, down from the prior week’s level of 1,838. The index reached a high of 11,793 on May 20, 2008 and a low of 663 on December 5, 2008. The index reached a recent peak of 4,661 set on November 11, 2009.
The TED spread measuring the difference between LIBOR and Treasury bill rates, which rose as high as 464 basis points during the liquidity crisis of 2008, is currently in more of a normal range of 35 basis points, but has increased as of late due to Euro bank concerns. The TED spread is a gauge of the willingness of banks to lend to one another. The lower the TED spread the more willing banks are to lend with each other. The TED spread fluctuates over time but generally has remained within the range of 10 and 50 bps (0.1% and 0.5%) except in times of financial crisis. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
Last week, oil was up +0.8% and closed at $87.96 per barrel. Year-to-date oil is down -3.7%. The average price of unleaded gasoline dropped -1.7% last week to end at $3.588 per gallon per September 18th data provided by AAA. Year-to-date, unleaded gasoline is up +16.8%. Natural gas was down -2.7% last week and closed at $3.809/MMBtu. Year-to-date, natural gas is down -13.5%.
Last week, gold dropped -2.4% closing at $1,812.10 per troy ounce. Year-to-date, gold is up +27.5%. The dollar was down -0.8% last week as measured by the U.S. Dollar Index with that index closing at 76.599. Year-to-date, the U.S. Dollar is down -3.1% as measured by the Dollar Index. The Euro was flat against the U.S. dollar closing at $1.38/Euro. Year-to-date, the Euro is up +3.2% against the U.S. Dollar.
In the coming week, look for corporate earnings from Oracle (“ORCL”), Adobe Systems (“ADBE”), General Mills (“GIS”), Bed Bath and Beyond (“BBBY”), CarMax (“KMX”), Fed Ex (“FDX”), and NIKE (“NKE”). Look for economic reports this week on housing, building permits, home sales, FOMC interest rate decision (no change in short-term rates expected), and weekly jobless claims data.
Sources: Bloomberg, The Wall Street Journal, Barron’s, The New York Times, ValueLine.
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