Permanent Value

Weekly Update: March 8- 12, 2010

Michael La Salle
March 12th, 2010

Stocks Higher After Mixed Economic Data

Stocks finished the week higher this week as the S&P 500 gained 0.99% and the Dow Jones Industrial Average rose 0.55% on the week.  In the economy this week, the overall United States trade deficit unexpectedly shrank in January to $-37.3 billion down from $-40.2 billion in December.  Economists estimated an increase in the deficit of $800 million to $-41 billion.  Retail sales also surprised this week as consumers continued to spend in February despite the heavy snow on the east coast.  Month over month retail sales were up 0.3%, coming in higher than the expected -0.2% drop.  Despite the surprise in retail sales, the University of Michigan consumer sentiment index were slightly lower than estimates of 74, coming in at 72.5.  This is down from February’s number of 73.6.

In earnings news, J. Crew Group, Inc. surprised analysts by posting earnings of 61 cents per share, 32.61% higher than estimates of 46 cents per share.  TIVO, Inc. also surprised as the home entertainment provider announced earnings of -9 cents per share, 3 cents better than analysts’ expectations of -12 cents per share.

What opportunities are ahead?

Although the University of Michigan consumer sentiment index was slightly down this week, I continue to have upbeat feelings towards the U.S. economy and the stock market.  We had other positive news, including the renewed support of the fact that consumers are beginning to pour money back into the economy.

A positive retail sales report says many things to me.  It says people are willing to spend their money, but more importantly, it tells us that people are willing to spend money on things they do not particularly need.  These are things like going out to eat, new clothing, and the newest electronics.  I actually heard someone on the news today say that even though he thinks the new Apple iPad is probably a waste of money; he will probably end up buying one anyway.  Can you imagine hearing that one year ago?

The shear fact that consumers are willing to spend their money again, and spend money on things they do not need, opens a lot of investment opportunities.  Two of the most prominent opportunities are the consumer discretionary sector and the technology sector.  The consumer discretionary sector will continue to grow as consumers buy more and more of the things that are, well, discretionary.  The technology sector will also see growth from consumers buying more of their products, but more importantly will also see growth from companies who have been putting off upgrading their technology until they have the revenue to do so.  With more people spending money, that time is rapidly approaching.

Market Returns

This Week Year to Date Last Year Last 5 Years
S&P 500 0.99% 3.13% 53.18% -4.17%
Dow Jones Industrial Average 0.55% 1.89% 48.18% -1.39%

Next Week’s Economic Releases

March 15 – Industrial Production, Housing Market Index

March 16 – Housing Starts

March 17 – Producer Price Index

March 18 – Consumer Price Index