Markets Close Up with Five Straight Days of Gains

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Just when you thought the equity world was about to fall apart, markets were greeted with five consecutive days of upswings during the second full week of trading in September. Worries that several countries in the European Central Bank region would default on their debt had caused stocks to begin the month with one of its worse performances on record. However, news that five of the world’s central banks would provide for some much-needed liquidity has for now dissipated the majority of the ‘bears’ for now. Currently, it looks like this action is nothing more than a band-aid, as the only way you can eventually solve these debt issue problems is to actually write them off as bad debts. For the time being, this huge rally may be ‘short–in-the-teeth,’ so enjoy it while you can.

As the wild fluctuations in the equity markets continued, the problems across the pond certainly overshadowed the $447 billion jobs program that President Obama unveiled this past Thursday before a joint session of Congress. The Dow Jones Industrial Average fell 2.7% that following Friday alone, and now has the Dow sitting below the psychologically important 11,000 mark. The Dow’s 4.08% decline in the first three days of September is its fourth worst three-day start going all the back to 1900. For the week, the Dow gave up 248.13 points or 2.21%. Meanwhile the Standard & Poor’s 500 dropped 1.68% on the holiday-shortened week to a level of 1,154.23. The tech-laden Nasdaq fared noticeably better as it only lost 0.5% to the 2,467.99 mark. The smaller-cap stocks as represented by the Russell 2000 didn’t fare much better than the overall market, as it gave up 1.38% on the week and now sits at the 673.96 level.

On a year-to-date basis, the major equity indexes are looking rather bleak. Thus far for 2011, the Dow Jones Industrial Average index is off 5.06%; the Standard & Poor’s 500 is off by 8.22%; the Nasdaq Composite index is down 6.97%; and the Russell 2000 is off an atrocious 14.00%.Despite an ugly inflation report, along with a horrid jobless claims report, and a disappointing retail sales report, plus with new worries as to future earnings, the stock market posted a rock-solid week to say the least. The Dow Jones Industrial Average gained 4.70% on the week, or almost 517 points, to leap over the 11,000 threshold to 11,509.09. Meanwhile the broader Standard & Poor’s 500 added 5.35, as it climbed above the 1,200 mark, and now sits at a level of 1,216.01. The tech-laden Nasdaq was the biggest winner on the week as it jumped by 6.25% to end the five-day-trading session at the 2,622.31 mark. Even the smaller-cap names as represented by the Russell 2000 were higher on the week, as this index jumped by 5.99 percent and rests at the 714.31 level.On a year-to-date basis, the major equity indexes are still in the ‘red’ although they are fighting themselves higher. Thus far for 2011, the Dow Jones Industrial Average index is off 0.59%; the Standard & Poor’s 500 is off by 3.31%; the Nasdaq Composite index is down 1.15%; and the Russell 2000 is off a bloody 8.85%.With stocks putting up strong numbers last week, Treasury yields moved higher, after having hit six-decade lows from the tension over the ongoing European sovereign-debt crisis. Right now it’s obviously clear that the rush of investment-grade companies into the credit markets means that they are benefitting handsomely from the low long-term yields on Treasuries. The average interest rate on a 30-year fixed-rate mortgage dropped last week to a record low of 4.009%, according to Freddie Mac. However, the housing market still remains in the dumps, as the newly installed tougher credit standards still won’t allow most borrowers to get approved. The benchmark 10-year note yield increased by 14.4 basis points, or to a level of 2.064%. (Remember, a basis point is 1/100 of a percentage point.) On the shorter-end of the maturity curve, the two-year note was virtually unchanged at 0.173%. All eyes will be on the Federal Open Market Committee this week as they hash out an agreement to bend long-term yields still lower which may result in some contentious talks among the usually collegial Fed Officials. We’ll all be waiting with baited breath until around 1:15 p.m. CDT Wednesday, when the central bank releases its policy decision.

Looking ahead to economic news this week, the biggest news will be the Federal Open Market Committee meeting, which we’ve already mentioned. More than likely they’ll announce some sort of additional stimulus for the economy in hopes of jump-starting such. Given the current weak state of the economy, look for Bernanke and the Fed to throw the market some sort of big, juicy bond on September 21st. Such an act could possibly rally the markets as we head into the end of the third quarter, which would be great news for the ‘bulls’ out there. In the earnings space, retailers such as Bed Bath & Beyond, FedEx, Darden Restaurants and Nike are all scheduled to report. These earnings numbers will give us some type of indication as to the tone of consumer confidence and spending, in an environment that is now be perceived as likely to be a “double-dip” recession.

Look for another action–packed week of stock market activity, and hopefully the volatility will lessen up somewhat. In the meantime, take care and please do not hesitate to get a hold of us with any questions or concerns as we head into the final weeks of September.

Sources:Barron’s, Wall Street Journal, Associated Press, Econoday, Gorilla Trading, Dow Jones & Company, Briefing.com

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