Permanent Value

Weekly Update: March 29-April 2, 2010

Michael La Salle
April 2nd, 2010

Stocks Higher, Job Market Improving

Stocks closed higher in a week shortened by Good Friday, as the S&P 500 gained 1.57% as the Dow Jones Industrial Average gained 1.72% on the week.  President Obama, fresh from his visit to Afghanistan, announced Wednesday that he will be lifting a ban on oil drilling of U.S. shores, sending energy stocks up nearly 5% for the week.

In economic news this week, the Institute of Supply Management Manufacturing Index jumped 3.1 to 59.6 above expectations of 56.3, indicating recovery for the industry.  Consumer confidence also surprised this week as the Conference Board announced a March reading of 52.5, up from 46.0 in February, beating expectations of 50.0.  The employment situation also seems to be improving as month over month nonfarm payrolls were up 162,000 jobs in March.  More importantly, January and February revisions were up a net of 62,000 jobs, pushing January from negative to positive numbers.

In earnings news, Mosaic Company disappointed as the U.S. fertilizer company reported earnings of 50 cents per share, coming in 18% lower than analysts’ expectations of 61 cents per share.  Border’s Group, Inc., on the other hand, beat expectations by 60.4% as the specialty retailer posted earnings of $1.62 per share.

What opportunities are ahead?

With a stroke of his pen, President Obama made history last week by signing the health care reform bill.  He not only marked his biggest victory since being elected to the White House, but brought substantial change to the entire health care industry.  He was back at it again this week as he changed the face of the energy industry by reversing a long-standing ban on oil drilling off many U.S. shores.

On Wednesday, President Obama announced his plan allowing oil exploration in a total of about 300 million acres along the Atlantic coastline, the eastern Gulf of Mexico, and the northern coast of Alaska.  Although this is probably a politically motivated move, the United States energy sector is poised to benefit from the changes, particularly oil exploration companies.

While investors initially reacted positively to the proposal, the energy sector should remain a volatile one.  Energy, especially oil and gas exploration, is a speculative investment, but with the loosening of restrictions many companies in the industry may profit immensely.

All in all, President Obama’s new energy direction presents risk-tolerant investors with a great place to seek growth for the years to come.

Market Returns

  This Week Year to Date Last Year Last 5 Years
S&P 500 1.57% 5.65% 44.39% 0.44%
Dow Jones Industrial Average 1.72% 4.79% 40.52% 5.02%


Next Week’s Economic Releases

April 5 – Pending Home Sales Index