S&P 500 1,141.81 +3.05% for the week.
U.S. equity markets rose all week on better-than-expected earnings reports, multiple corporate takeovers, falling energy prices and strong manufacturing and employment reports. Best Buy(BBY), Circuit City(CC), Allegheny Technologies(ATI), Schnitzer Steel(SCHN), Autodesk(ADSK), WalMart(WMT) and PepsiCo(PEP) all made positive statements regarding the strength of their businesses. Hollywood Entertainment(HLYW), Tularik(TLRK), Millennium Chemicals(MCH) and Arch Wireless(AWIN) all announced their acquisition this week, continuing a very strong trend since the beginning of the year.
Crude Oil fell 3.4% for the week as traders took profits on OPEC's 4% production cut. As well, speculation the Bush administration would implement measures to cut U.S. demand pressured crude prices. This resulted in outperformance by the Airline sector(+8.6%) and underperformance by the Oil service sector(+.59%) for the week.
The very strong ISM Manufacturing report and Friday's blow-out jobs report were the main catalysts for U.S. stocks throughout the week. However, these great reports sent bond prices lower for the week, resulting in a rise in the 10-yr. T-note yield to 4.14%. This led to outperformance by the technology sector and underformance by the financials and homebuilders for the week.
Another market-moving announcement came Thursday when Dow Jones reported its first changes to the Dow average since 1999. Eastman Kodak(EK), International Paper(IP) and AT&T(T) will be removed this Thursday in favor of American International Group(AIG), Verizon Communications(VZ) and Pfizer(PFE).
BOTTOM LINE: This was a very good week for the bulls. The NASDAQ broke its recent downtrend on Friday with a gap-up move on good volume and breadth. I think tech stocks will outperform this quarter, led by semiconductors. The SOX fell 18.4% from its recent highs over the last couple of months, while fundamentals continued to improve. I suspect this semi cycle will last longer than is currently expected, thus making the recent decline a significant buying opportunity. Oil Service stocks have corrected about 10% from their recent highs. This group may see a little more deterioration in the short-run as crude moves towards $30/bbl., however long-term investors should begin adding to favorite longs now as current weakness in energy prices is only temporary in nature. Homebuilders are up 92.6% over the last 12 months. This stunning performance, combined with Fed rate-hike fears, will lead to more profit-taking in the short-run. I expect this group to fall over 15% from its recent highs. Companies that build for the low-end market should see their stocks decline the most.
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