Permanent Value

Weekly Update: September 13- 17, 2010

Michael La Salle
September 17th, 2010

Stocks and Gold Continue to Climb

Stocks continued to climb for the third straight week as the Dow Jones Industrial Average gained 1.39% and the S&P 500 gained 1.45%.  For the month of September, the Dow Jones Industrial Average is now up 5.92%, and the S&P 500 is up 7.27%.  Gold continues to hit all-time highs as it has reached nearly $1,278 per ounce.

In economic news, retail sales beat economists’ expectations and increased 0.3% this week as overall retail sales gained 0.4% in August, following a 0.3% gain in July, indicating that consumers are still spending.  Industrial production slowed down in August but still shows gains for the year.  The month over month growth for August was 0.2%, following a 0.6% jump in July.  The Producer Price Index came in slightly higher than expected for August, rising 0.4% for the month, as the Consumer Price Index came in line with expectations at a 0.3% increase.  The only disappointing economic news this week was the University of Michigan’s Consumer Sentiment Index which unexpectedly declined in September to a reading of 66.6, down from an expected 70.0.

In earnings news, Best Buy Co., Inc. beat analysts’ estimates of 44 cents per share this week as the U.S. electronics retailer posted earnings of 60 cents per share.  Oracle Corporation also exceeded expectations this week after posting earnings of 42 cents per share.  Expectations for Oracle were set 15% lower at 36 cents per share.  Fedex Corporation disappointed analysts on Friday as the shipper posted earnings of $1.20 per share, coming in one cent lower than estimates.

What opportunities are ahead?

Concerns over the economy and its effect on the stock market have been in the forefront of many investors’ minds for some time now.  But with the recent news that two of the major threats against the economy are shrinking (rising unemployment and deflation) , investors everywhere may continue to poke their heads out of their shells and begin to feel more confidently about their prospects.

Over the past few months, we have seen a rise in initial jobless claims and a decrease in wholesale prices, which intensified concerns that we were on the brink of another economic downturn.  This week alone, it was announced that jobless claims dropped while there was a small increase in the producer price index, providing additional evidence that a second recession in the near future is unlikely.

On Thursday, the Labor Department announced that first-time jobless claims fell by 3,000 to 450,000 last week; just one month after initial claims hit the 500,000 mark and the lowest level in two months.  Although the numbers do not indicate a hiring boom, they do point to a stabilizing labor market. 

The second indication that the economy is strengthening was the uptick in the producer price index.  With the producer price index rising only 1.3% in the past year, it looks as if inflation is not gaining at the pace that many economists expected.  In fact, earlier this year, deflationary fears crept in as prices fell for three straight months, but with the increases over the past three months, those fears have subsided.

Although the economy may have some ways to go, it looks as if the threat of a double-dip recession is fading.  As investors continue to see strength mounting, they will undoubtedly return to the stock market pushing the market higher.

Market Returns

  This Week Year to Date Last 12 Months Last 5 Years
S&P 500 1.45% 0.94% 5.64% -9.07%
Dow Jones Industrial Average 1.39% 1.72% 8.42% -0.32%


Next Week’s Economic Releases

September 20 – Housing Market Index

September 21 – Housing Starts

September 23 – Jobless Claims, Existing Home Sales

September 24 – Durable Goods Orders, New Home Sales