Weekly Bull/Bear Recap: Apr 25-29, 2011

Submitted by Rational Capitalist Speculator

Weekly Bull/Bear Recap: Apr 25-29, 2011

Bull

+ Earnings and revenues for various   bell-weathers portray improvement in corporate performance.  Revenue-beat rates are the highest since the bull market began (there’s your top line growth bears).  A steady trend of share buybacks and increased dividends will keep the bull market trend in place since March 2009 intact as companies return profits to investors. 

+ The Bull Market rolls on as the Dow Theory is confirmed with both DJ Transportation & Industrials averages breaking through their prior bull market highs.  The S&P 500 and Nasdaq have finally confirmed as well by breaking their previous bull market highs set in Feb.  Even better, there’s a good bit of skepticism out there in regards to this latest breakout, the wall of worry remains.

+The Chicago Fed National Activity Index points to above-trend economic growth and refutes claims that economic activity has fallen.  Manufacturing continues to lead the way and the report points to strong contributions from the Job market.  Small businesses are slowing recovering and hiring is increasing in breadth.  

+ Durable Good Orders rise a healthy 2.5%, while core-capital goods rise a strong 3.7%.  Orders have now risen for 3 straight months.  Shipments climb for the 5th straight month as well.  Meanwhile, Chicago’s Midwest Manufacturing Output index increases 1.9% led by strong auto-related production.  Finally, ATA truck tonnage levels and recent railroad data point to continued expansion in the manufacturing sector.

+ Consumers continue to spend as evidenced by recently released weekly sales metrics and the Restaurant Index.  Easter demand has been solid thus far.  Consumers have become accustomed to higher gas prices and continued improvement in the job market will ensure that spending growth continues.

+ The Conference Board reports that consumer confidence for April continued to stabilize as the “current conditions” component rose for a 7th straight month.  The recovery continues.  Plans to buy a house, an auto, or an appliance rose in renewed confidence that incomes will improve in the months ahead.  This confirms recent improvement from the University of Michigan sentiment survey.  

+ Despite all the bearish chatter, manufacturing orders continue to pile up for the Eurozone and confirms that the recovery continues in that region.  Strong demand from Asia confirms that the global restructuring is taking place. 

Bear

- Jobless claims disappoint again surging to 429K, marking the highest level since January while last weeks’ claims were revised….guess.  Job growth has effectively stalled as more companies find it better to seek cheap labor outside of the US and heightens the risk for protectionist sentiment coming from Washington in the months ahead if things don’t improve. 

- The housing double-dip is knocking at the door as Case-Schiller Home-Price Index reports the 7th straight month of lower prices.  What led us into the Great Recession has just recommenced its second dip.  The banks are sweating as well.  They have clearly failed to participate in the latest run up in equity prices (XLF, BKX).  Bank balance sheets are not prepared for a double-dip in home prices.

- Manufacturing around the nation is showing signs of a considerable slowdown in growth as Dallas, Richmond, and Kansas manufacturing surveys come in way below expectations. Manufacturers in Richmond signal that Inflationary pressures will be hitting the consumer very soon and bodes ill for an already fragile consumer confidence…

- …and speaking of consumer confidence, we got more bad news on that front as well as the Gallup Poll reports yet more deterioration.  The Bloomberg Consumer Comfort survey has followed suit as well.  Meanwhile, UK consumer confidence is probing the 2009 depths of despair (austerity is a sharp double-edged sword).

-  The Eurozone continues to simmer.  Portugal, for the second time now, revises its deficit upwards from 8.6% to 9.1%.  Same deal with Greece (restructuring seems inevitable here).  Next victim for the bond vigilantes?  Spain would be a too big to bail out economy if it came under stress and it has been lately.

- Signs continue to come from China that things are getting pretty hairy over there.  While the S&P 500 broke through to bull market highs, the Shanghai Composite just broke below its 50-day moving average.  Inflation is getting worse in China as officials haven’t done enough to quell sticky wage-fueled inflation.  Growth is slowing as well.  All these signs point to a stagflationary scenario in the upcoming quarters.

- Q1 GDP comes in a mediocre 1.75% (less than expectations), with the all important Real Final Sales metric (=end-demand) registering a pitiful 0.8%, the lowest since Q3 ‘09 and much lower than the 6.7% rate in Q4.  Cuts at the state and local gov’t level are being felt as well.  While Consumption did rise higher than expectations, let’s not forget that oil prices averaged under $100 a barrel.

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