The S&P 500 Index rose for the 10th time in the last 11 weeks as strong economic reports and subsequent comments by a Fed Governor led investors to conclude that an imminent interest rate hike was not in the cards. Wednesday's technology weakness, led on the downside by CSCO, proved fleeting as investors focused on improving corporate profits with exceptionally low inflation. Profits for the S&P 500 are now projected to rise a healthy 14.2% in the 1st Q and 13.6% for all of 04. Thursday and Friday saw a rotation back into cyclicals, especially retail and technology.
BOTTOM LINE: Friday's strong positive reaction to underwhelming employment numbers shows the underlying strength in the US equity market. I would like to see follow-through on Mon. I expect we will. Seemingly overnight, investors decided that interest rates were not going to rise significantly anytime soon, thus rotating viciously back into cyclicals. I suspect a short-squeeze also contributed to the strength Fri.
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