The S&P 500 advanced for an 11th week in 12 on Greenspan's testimony to Congress, takeover announcements and interest rates near 46-year lows. Greenspan told lawmakers Wednesday the U.S. economy may grow as much as 5% this year, the strongest pace since 1984, without sparking inflation. As a result, he said the Fed can be "patient" with respect to raising rates. Comcast's hostile bid for Disney and Juniper's acquisition of NetScreen generated excitement for further takeover announcements. Consolidation, in the form of increased mergers and acquisitions, is generally very positive for the overall market.
In other positive developments, Imclone's Erbitux received FDA approval for the treatment of colon cancer. PC motherboard shipments in Jan. rose much more than expected according to Smith Barney. The FCC ruled a computer-to-computer calling service isn't subject to traditional telephone rules, signaling it will take a hands-off approach to other internet-phone services as it begins a regulatory review of the VOIP industry. Commodity-related sectors exhibited tremendous strength throughout the week on price increases resulting from voracious Chinese demand and a significant improvement in U.S. growth.
While the S&P 500 rose modestly for the week, the NASDAQ fell .5%. This divergence and weakening breadth readings are a little worrisome and merit attention. OPEC's decision to cut production in April and stick to quotas resulted in a significant increase in energy prices. While Dell met expectations, it was more conservative than most investors expected on its conference call. I believe they are managing expectations to enable them to report a very good upside surprise next quarter. Lastly, Bank of America lowered expectations for Intel's 1st quarter sales and profits. I am not sure what to make of this, as it contradicts the Smith Barney motherboard report. Investors took profits across the board in technology the last two days of the week.
BOTTOM LINE: It appears as though last week's market action was a continuation of the recent consolidation that began a month ago. It wasn't a bad week, but with the exception of commodity-related sectors, not good either. It seems as though more consolidation needs to occur before a meaningful thrust through recent highs.
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