Round Two

The stock market opened this past week by moving higher – again! Remarkably, that’s been a pattern for 26 of the last 30 weeks. This is remarkable because historically Mondays tend to be the weakest trading day of the week, and Friday’s have traditionally been the strongest.

There was mixed news on the economic front. According to ADP and Macroeconomic Advisors, employers cut payrolls by 23,000 positions in March. The market had been expecting to see an increase of 40,000 positions. That is a swing of over 63,000 jobs to the negative. Last month when jobs were lost but less worse than expected, the markets staged a big rally. This time with a big miss the market held its own. On the bright side, the March decline in ADP payrolls was the smallest in over two years.

The current consensus estimate for nonfarm payrolls calls for an increase of 185,000 positions to be reported on Good Friday, while the US stock market is closed. At least 100,000 of those newly created jobs will come from the government hiring temporary census workers. Keep the champagne on ice when reviewing those statistics.

This week the S&P/Case-Shiller home-price index was announced revealing that prices nationally were down 0.7 percent from January 2009. The silver lining was that represented the smallest decline in over two years.

Lower priced homes, record low borrowing costs and government incentives have combined to support the housing market. However, the Federal Reserve’s purchase of $1.25 Trillion of mortgage securities ended effective yesterday. It will be interesting to see who picks up the slack or will we witness a sharp increase in mortgage interest rates. That could really put a damper on the housing market. A lasting economic recovery also requires gains in hiring on a consistent long term basis. That could help stem foreclosures, easing the pressure on prices and give Americans the confidence to spend.

Tuesday, Iceland suffered from a credit rating decline. Irish banks were being bailed-out as Greece could only sell half its bond issue needed to refinance their debt. International markets are still deeply tied to each other. While some countries are doing better than others, I still feel a domino effect could happen should too many countries not solve their sovereign debt issues.

We are in the monthly strength period, the trading days surrounding the end and start of any month. It has a very strong tendency to be positive as large sums of money flow automatically into the markets at this time, mostly from 401k, 403b, and other retirement plans.

The Dow is struggling to get above 11,000. Markets are extremely overbought, but have been for several weeks. Investor complacency is rampant. The government’s attempt to bail out the private sector by creating more debt will one day have to be dealt with and will most likely cause a severe disruption in the stock market. In the interim, the market remains bullish. The second round of quarterly earnings will be starting shortly and the year over year comparisons should be easy. How much of the better earnings are already factored into today’s market price remains the question.

Volume remains extraordinarily low. Any number of events could trigger a selloff and it is important to note that the market always goes down much quicker than it goes up. In the meantime the market continues to claw its way higher in a measured fashion. It is important to participate in the markets, but ensure you have a plan for protection.