Stocks Take The Lead

World Markets

Stocks asserted their leadership over other asset classes during the past week gaining just over 4%, as measured by the S&P 500. Last week also saw the DJ-30 and NASDAQ break through resistance levels; the S&P 500 and NYSE have yet to do so. U.S. stocks saw several market leaders emerge, a positive development. Volume did pick up but still came in below average.

U.S. REITs turned in a strong performance followed by stocks in emerging and other developed countries. IBD reported the Shanghai Index is down 41% so far in '08 and 49% since October '07 highs, possibly presenting an opportunity for patient investors. Commodities also saw small gains, bonds fell for the week.

This coming week a broader representation and larger number of companies will report earnings. MarketWatch reported the overall earnings outlook has only weakened slightly from a 14.1% decline to a 14.6% with 157 companies from the S&P 500 having reported. Companies with a larger percentage of business overseas are benefiting, as expected, from a weak dollar and stronger economies internationally.

World Economy

A slightly better than expected report from U.S. retailers was followed by weak reports from manufacturers and the housing market. Industrial production in the Euro Zone appears to be holding but the ECB warned a slowdown could be coming. The WTO expects world trade growth will slow to a 6-year low of 4.5% in ’08, versus 5.5% in ’07 and 8.5% in ’06. LIBOR rates spiked mid-week causing the spread between LIBOR and Treasuries to widen, a sign of continued tight lending conditions between banks.

Inflation Data

Higher wages in the Euro Zone has the ECB on inflation alert. In the U.S. producer prices jumped 1.1% in March, double forecast. Core inflation hit 2.7%, its highest level in nearly 3 years. Still, the Economic Cycle Research Institute reading on future inflation continues to signal we are in an inflationary cycle downturn.

Summary

At this point we have an intermediate term rally underway. It remains to be seen whether it can mature into the start of a new bull market for U.S. stocks. For a nice combined market/economic summary, check out this story on MarketWatch, Five signs the market has bottomed.