A Week in Review and a Look Ahead

A Week in Review

There was not much change on the week as the Dow dropped 1%, the S&P 500 dropped 0.25% and the Nasdaq rose about 0.59% continuing its outperformance. The telecom (+3.7%) and healthcare (+1.4%) sectors outperformed while energy (-2.3%) and financial (-1.1%) sectors lagged. Year-to-date, the Dow remains down about 4% but the S&P 500 is up 2% and the Nasdaq is up about 17%.

The big news for the week was that FOMC left the benchmark Federal Funds rate unchanged (at range of 0.00% and 0.25%), noting that there is a slowdown in the economic contraction. The committee also stated that economic conditions are likely to warrant exceptionally low levels for an extended period of time. The Fed’s quantitative easing programs remained unchanged, targeting the purchase of mortgage-backed securities ($1.25 trillion), agency debt ($200 billion), and long-dated Treasury securities ($300 billion).

We continue to see some signs that economic growth is bubbling beneath the surface and that the recession's depth is lessening. The final report for the national Gross Domestic Product for the first quarter of the year was revised upward by two ticks to -5.5%. It's a small improvement in a weak quarter. Nonetheless, any upgrade is a welcome one, and with improvements in economic reports over the past month or two, the second quarter does seem to promise a move higher to a less negative reading.

The indices are all trading above the 50-day moving average, but whereas the S&P 500 Index, Nasdaq Composite Index, and Russell 2000 Index are also trading above their respective 200-day lines, the Dow Jones Industrial Average and the Dow Jones Transportation Index are still below this key line. In order for a major uptrend to manifest itself, an upturn in the 200-day average itself also needs to take place.

Looking Ahead

This holiday week is a shortened one, with the markets closed on Friday. It is also the end of the quarter and the beginning of the new month, which may lead to an increase of cash in-flows into the market before traders skip out of town. This week's economic reports include the Case-Shiller Housing index, Chicago PMI and Consumer Confidence on Tuesday, ISM Manufacturing, Construction Spending, and Pending Home Sales on Wednesday, an European Central Bank Rate announcement, US Employment Report, Factory Orders and Unemployment Claims on Thursday, followed by a long three day weekend to celebrate our country's independence.