Sunday, February 29, 2004

Market Week in Review

S&P 500 1,144.94 +.07%

The major U.S. indices continued their consolidation last week, as strength in homebuilders, restaurants, retailers and commodity-related companies was offset by weakness in technology and defense stocks. Significantly better-than-expected earnings reports from Ingram Micro(IM), Marvell(MRVL), Novellus(NVLS) and Autodesk(ADSK) could not stem the wave of profit-taking that has engulfed tech shares recently. As well, defense stocks remained week as the discontinuation of the Comanche helicopter program by the U.S. Army led to speculation of future cancellations.

Homebuilders reemergence as a leadership group came on the heels of a great earnings report from bell-weather Toll Brothers(TOL), strong retail spending reports, falling interest rates and short-covering. Retailers and Restaurants rose on positive words from Alan Greenspan about the financial health of the U.S. consumer, positive reports from Wal-Mart and Target, the anticipation by investors of imminent tax-cut stimulus and very strong retail spending reports. Commodity-related shares continued their rolls as market leaders. Better than expected U.S. and Japanese economic reports, along with increasing demand from China will continue to push commodity prices higher in the intermediate-term.

BOTTOM LINE: Overall, last week was a pretty good week for the bulls. I view the recent rotation out of the "overvalued" tech shares and into many other sectors as very positive for the long-term health of this bull market. Many stocks outside of the tech sector had an excellent showing for the week. Moreover, with all of the strong economic reports released and commodity prices continuing their relentless rise, it is remarkable that interest rates actually fell and seem to be on the verge of a technical breakdown. The bears will say that we had these positive reports and the market couldn't move, but that is an incorrect evaluation of the current situation, in my opinion. The major indices have risen so far, so fast, it is healthy for the market to pause and consolidate before continuing higher.

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