Friends
What a difference a week makes. For that matter, what a difference a few days makes. Last Friday a grumpy Mr. Market let us know that he meant business. After a handful of earnings reports, which began with Alcoa and mixed in a couple of banks such as Bank of America and J.P. Morgan Chase, Mr. Market was not in a very good mood. The problem was, that Alcoa’s earnings(which actually weren’t bad at all) should never be seen as a “tell” for the upcoming earnings season, and banks are just a mess and as we pointed out last week, a place where investment dollars go to die. We even had a veteran CNBC host ask an analyst late last week what he felt about the “disappointing” earnings season. After a stunned silence, the analyst rightfully pointed out that we had just gotten a handful of reports at that point, and we had to wait for the next couple of weeks to unfold.
Well, after Monday’s drubbing fueled by S&P’s discouraging outlook on U. S. debt, we have received a plethora of good earnings reports from the likes of Intel, GE, Honeywell, Freeport-McMoRan, YUM Brands and of course Apple. After a down Monday, Mr. Market is smiling again and stocks have moved higher as the week has gone on. After holding on to the 1300 level on the S&P 500, stocks are back above 1330 and looking to challenge that 1340 resistance level we have been watching. With a three-day weekend looming, traders may choose to take a few chips off the table later today as we have had a nice move up since Monday.
We suspected that earnings would be the focus of traders as this week progressed and that has been the case, but one cannot ignore the continuing plunge of the U. S. dollar and its effect on gold, oil and stocks. The “risk on” trade reappears each time the dollar resumes its decline and we have gold dancing around the $1500 level, oil challenging $112 per barrel again this morning, and stocks challenging two year highs. If this correlation continues, we ask ourselves here at CHJ, what happens when the Fed starts to raise rates and defend the dollar? And better yet, what if the politicians do actually start to address in a serious manner, the budget deficit (yes-I said that with a straight face) and that begins to support the dollar? What happens to the “lower dollar/risk on” trade?
We’ll continue to monitor the Fed and the politicians, but in the meantime Mr. Market is in a much better mood as companies are reporting very nice earnings, increasing dividends and actually giving positive guidance for the next couple of quarters. What a difference a week makes, indeed.
The markets are closed tomorrow for Good Friday, and our office will be as well. Have a nice weekend everyone and we will check in with you next week.
