Last week's market action was a lot like figure skater Sasha Cohen's Olympic performance -- a few scares but nevertheless showing resilience under pressure.
Inflation concerns appeared early in the week, with last Tuesday's release of the FOMC minutes reporting inflation as "somewhat higher" than expected, fueling speculation of continued interest rate hikes. The S&P didn't like that very much and lost four points that day, but shrugged off the following day's January CPI report, revealing an increase equivalent to 2.4% compound annual rate for the three months ended in January, well above the Fed's 1.75% to 2% forecast. On Friday, January's durable goods report revealed its largest drop in 5 1/2 years, shedding 10.2% month over month, mainly because of a decline in aircraft orders. Although economists expected a mere 1% drop, equity markets seemed to ultimately dismiss this data.
The biggest potential shock to the markets was last Friday's attempted attack on a major Saudi oil facility. With oil surging to just shy of $63 per barrel, the S&P nevertheless turned in more than a two-point gain for the week, a modest but surprisingly respectable finish.
Let's hope we don't land on our backsides this week as the market scrutinizes a slew of economic data. Reports include new home sales due Monday; consumer confidence, existing home sales, and fourth-quarter gross domestic product growth reports due Tuesday; personal income due Wednesday; and consumer confidence on Friday. It should also be interesting to watch Google
Stay market-tuned and be Foolish!
Capital Markets Summary:
U.S. Equities
|
Close |
Weekly Change |
YTD Change |
|
|---|---|---|---|
|
Dow |
$11,061.85 |
(0.5)% |
3.2% |
|
Nasdaq |
$2,287.04 |
0.2% |
3.7% |
|
S&P |
$1,289.43 |
0.2% |
3.3% |
Global Equities
|
Close |
Weekly Change |
YTD Change |
|
|---|---|---|---|
|
Brazil Bovespa |
$38.610.39 |
0.5% |
15.4% |
|
France CAC 40 |
$5,073.95 |
1.5% |
7.6% |
|
German DAX |
$5,870.79 |
1.3% |
8.6% |
|
Japan Nikkei |
$16,101.91 |
2.5% |
(0.1%) |
|
U.K. FTSE 100 |
$5,860.50 |
0.2% |
4.3% |
U.S. Treasuries
|
Rate/Yield |
|
|---|---|
|
Fed Funds Target |
4.5% |
|
Prime Rate |
7.5% |
|
2-Year Note |
4.72% |
|
10-Year Note |
4.57% |
|
30-Year Bond |
4.53% |
Currencies
|
Exchange Rate |
|
|---|---|
|
$/Euro |
1.1876 |
|
$/Yen |
0.0086 |
Commodities
|
Price |
|
|---|---|
|
Crude Oil |
$62.91 |
|
Gold |
$561 |
|
Soybean |
$590.25 |
Foolish Quiz:
1. The Dow rallied last Monday largely because of:
__ (a) a plethora of good earnings reports.
__ (b) anticipated merger activity.
__ (c) decreased inflationary pressures.
__ (d) none of the above.
2. The Nasdaq Composite, unlike the Dow, managed to eke out a slight weekly gain.
___ True ___ False
3. The stock market's gold-medal performers included:
__ (a) H&R Block
(NYSE:HRB) .__ (b) Research In Motion
(NASDAQ:RIMM) .__ (c) JetBlue
(NASDAQ:JBLU) .__ (d) General Motors
(NYSE:GM) .
4. Sectors showing strength included:
___(a) coal.
___(b) automobiles.
___(c) steel.
___(d) telecommunications.
5. The U.S. Treasury market:
__ (a) remained inverted, since yields on the short-end were greater than those for longer dated maturities.
__ (b) remained inverted, since prices on the short-end were greater than those for longer dated maturities.
__ (c) showed some concern over January's durable goods orders.
__ (d) saw prices inch higher for the week.
6. According to Fed Chief Ben Bernanke, oil price increases over recent years have:
__ (a) significantly raised inflationary pressures, like in the 1970s.
__ (b) significantly raised inflationary pressures, unlike in the 1970s.
__ (c) had little impact on underlying inflation, like in the 1970s.
__ (d) had little impact on underlying inflation, unlike in the 1970s.
7. Following last Friday's attempt to blow up the Saudi oil field:
__ (a) oil prices surged more than $2 per barrel.
__ (b) gold prices rose.
__ (c) corn prices rose.
__ (d) oil prices surged more than $3 per barrel.
8. The dollar rose versus the yen after a key Japanese official suggested that the central bank might soon pare back its extremely loose monetary policy.
___ True ___ False
9. Global markets:
__ (a) showed European indices continuing to rise.
__ (b) are increasingly becoming a portion of U.S. equity mutual funds.
__ (c) closed early for the Olympic closing ceremonies.
__ (d) were closed because of the Olympic closing ceremonies.
10. Individual investors are returning to the stock market at stronger rates than in recent years.
___ True ___ False
Answers
1. (d). Ha! If you chose any other answer, please explain -- U.S. markets were closed last Monday because of Presidents Day.
2. True. Another easy one -- you just had to scan the Capital Markets Summary above!
3. (b), (c). Research in Motion gained 3.9% Friday on a ruling that stopped short of ordering an injunction on sales and servicing of its Blackberry device, even though its patent was found invalid. Jet Blue soared 6.7% following J.P. Morgan's upgrade of the company to neutral from underweight, citing anticipated benefits from flight reductions by Delta Air Lines. On the downside, H&R Block tumbled over 9% for the week as it lowered its 2006 earnings guidance and announced it would restate its 2004 and 2005 earnings. General Motors also flopped, ending the week as the Dow's worst percentage decliner for the second consecutive day.
4. (a) and (c). According to Dow Jones' U.S. sector indices, coal rose just shy of 6% last week, while steel climbed over 4.5%. Automobiles, the worst-performing sector, lost 3.4%, and telecommunications, a sector showing strength the prior week, dropped 1.6%.
5. (a) and (c). Bond prices move inversely to yields. The bond market remained inverted, with shorter-term maturities continuing to post greater yields than longer-dated securities. Treasury prices edged lower following the durable goods release.
6. (d). In a speech last Friday, Chief Bernanke cited public confidence that inflation would remain low in the long term as a factor enabling the Federal Reserve to maintain a gradual and predictable interest rate policy. Let's hope he's right -- those 1970s really weren't so groovy.
7. (a), (b), and (c). Crude oil futures climbed nearly 4% following the terrorist attack, hitting an intra-day high of $63.15. Gold, which often benefits from safe-haven buying, rose over $10. Maybe you knew about oil and gold, but were you surprised about corn? Corn futures reached near six-month highs on export demand and general strength in the commodity markets. OK, so maybe it's not directly related to the oil field incident, but we did get your attention .
8. False. The dollar fell following news that Japan's five-year policy of flooding the markets with excess liquidity might soon end.
9. (a) and (b). Strong corporate earnings helped further boost European indices last week. Perhaps some of those performers may even be among your holdings. According to Morningstar
10. True. As reported last Thursday in The Wall Street Journal, data from various brokerage firms and financial services companies show increased investor activity, citing stronger equity markets and weakening bonds and real estate assets as factors.
Scoring:
8-10 correct: Foolishly impressive.
6-7 correct: Almost Foolish.
1-5 correct: OK, but just barely.
0 correct: Really?! Keep reading the Fool and watch your scores improve!
Fool contributor S.J. Caplan owns shares of Google. The Fool has a disclosure policy.
