Flat Market Open this Morning Ahead of a Busy Earnings Week

Oil Barrels1/24/11: In the markets, as in life, there are no guarantees but everyone is entitled to their opinion. Here’s my opinion on the financial markets today.

U.S. markets opened virtually unchanged this morning as the market awaits a “mixed bag” of earnings reports, the FOMC meeting, the President’s State of the Union address and fourth quarter GDP numbers.  On the earnings front, over 25% of the S&P will report this week.  Also this morning, European stocks dipped on political uncertainty in Ireland and mixed Eurozone PMI (Purchasing Managers Index) readings.  Japanese markets moved higher while the rest of Asia was slightly lower.  Crude is down more than a dollar to $88 following the Saudi Oil Minister’s comments that more OPEC supply may be on the way, while natural gas, precious metals and agricultural commodities are solidly higher.

Looking back to Friday, the seven week S&P winning streak came to an end as Friday’s modest gains were not enough, although the Dow Industrials made its streak eight weeks.  Strong GE earnings and spillover from strong European markets helped the U.S. averages, but weakness in Technology prevented the S&P 500 from doing better than a modest three-point gain.  Industrials topped the sector rankings thanks to GE, while well-received regional bank earnings lifted the Financials sector.  Meanwhile, Google and AMD experienced some selling pressure following their earnings results, weighing on the Technology sector.

Around our financial planning and wealth management firm this morning, we were discussing four major items that we thought would be of particular interest to our readers:

The earnings season is off to a good start. A solid 74% of reporting S&P 500 companies have exceeded analysts’ consensus earnings per share (EPS) targets, while the tougher hurdle, revenue targets, has seen an equally impressive 71% of companies beat forecasts.

Treasury yields are little changed ahead of this week’s 2-, 5-, and 7-year note auctions. Last week’s 10-year TIPS auction was met with weak demand, as the bid-to-cover ratio declined and primary dealers took down a relatively high allocation (68%) of the notes.  Last week’s strong Goldman Sachs’ new 30-year bond issue is evidence of investors’ lack of concern about inflation as the $2.5 billion offering drew $9 billion in bids.

Monetary and fiscal policy may dominate headlines this week, even as market participants absorb more than 128 fourth quarter earnings reports. There is a busy slate of economic data this week from both the fourth quarter of 2010 and January 2011.  In addition, several major international central banks meet to set policy this week.  There is no economic data this week from China, as the country approaches its Lunar New Year holidays.

Municipal bond yields declined by 10 basis points last week as some signs of stabilization have emerged. However, outflows from municipal mutual funds continued for the tenth consecutive week as retail investors remain skittish.  Last week’s $4 billion redemption was the largest since data was compiled in 1992.

As always, email me here with your questions or comments.  I love to hear from you and thoroughly enjoy the “intellectual debate” with our clients and friends that these opinions generate.

Greg Powell, CIMA
Wealth Consultant

Note: Indices such as the S & P 500 and the NASDAQ cannot be invested into directly.  These indices are used as a measure of conditions for different markets.

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