Permanent Value

Weekly Update: August 30- September 3, 2010

Michael La Salle
September 3rd, 2010

Stocks Jump on Economic News

Stocks finish the week higher as good economic data pushed the Dow Jones Industrial Average up 2.93%, and the S&P 500 up 3.75%.  Burger King Holdings Inc. agreed to sell itself to investment firm 3G Capital for $3.26 billion this week, giving the second largest U.S. fast food chain a chance to fix its business to close the gap with McDonald’s Corporation.

In economic news, consumer income and spending were both up in July as personal income rose 0.2% and spending was up 0.4%.  Consumer confidence was in August as the Conference Board’s index rose 2.5 points for the month to a level of 53.5.  Expectations were estimated at the 51.0 level.  The Institute for Supply Management’s manufacturing index came in at a stronger-than-expected level of 56.3 for a 0.8 gain from July.   The four-week new jobless claims average fell 2,500 to 485,000 after initial claims for the August 28th week came in at 472,000.  Positive news came from the housing sector this week as the National Association of Realtors Pending Home Sales Index rose 5.2% in July to end a two month down streak.  Closing out the week, overall employment fell for the third straight month despite a gain in the private sector.  Overall payrolls fell 54,000 jobs in August as private payrolls were up 67,000 for the month.  Expectations were set at a drop of 90,000 and a rise of 40,000 respectively.

In earnings news, a very slow earnings week was highlighted as Borders Group reported disappointing earnings.  The U.S. book seller posted a quarterly loss of 74 cents per share, far worse than the expected loss of 13 cents per share. 

What opportunities are ahead?

When the recession hit in late 2008, companies around the globe had to tighten their belts and cut some of their capabilities and some ultimately had to file for bankruptcy.  During the same time, other companies were able to cut costs enough to survive the downturn.  Now that the economy is revving up, those companies that were able to survive the recession now have any even stronger position than they had before.

One sector that this is apparent is the semiconductor industry, where stronger companies were able to cut production significantly instead of working at full capacity while the recession was still going strong.  By doing this, many companies kept their inventories down and in turn, there was no extra supply for the companies to sell when the economy began to bounce back.

Now that the global economy is improving, consumers and companies around the world looking for newer devices, and virtually anything you can think of has a semiconductor in it.  From the computers we work on, to the phones we communicate with, to the cars we drive all have semiconductors in them.

In fact, the chairman and CEO of the world’s largest manufacturer of semiconductors, Zhongmou Zhang, forecasts the global semiconductor industry production value will grow by 22% in 2010, and another 7% in 2011, giving investors an opportunity to benefit for the years to come.

Market Returns

  This Week Year to Date Last Year Last 5 Years
S&P 500 3.75% -0.95% 10.09% -9.32%
Dow Jones Industrial Average 2.93% 0.19% 11.81% 0.01%

 

Next Week’s Economic Releases

September 6 – Labor Day – All Markets Closed

September 9 – International Trade, Jobless Claims