The S&P 500 posted its first weekly decline in 2 1/2 months. The major US equity Indices entered the week in a technically over-bought state. Investors were looking for reasons to take profits and they got them in spades. The Fed's change in the wording of their policy statement coupled with 4thQ GDP coming in below expectations seemed to be the catalyst for the ensuing sell-off. As previously mentioned, I do not feel the Fed will tighten in the near future. The Fed Fund futures are currently projecting an increase of 25 basis points to occur around July.
There were several other factors weighing on stock prices throughout the week. Asian health officials are now projecting the bird flu will have a more damaging impact on the region than SARS did. The David Kay report, condemning the CIA for a major intelligence failure with respect to WMD in Iraq, and the Democratic primary debates resulted in a weakening in President Bush's approval ratings. Currently, Tradesports.com is projecting a Kerry/Bush match-up in November, with Bush having a 69% chance of re-election. Finally, the extent of the damage from the MyDoom computer virus became apparent, as experts predicted it would become the most financially damaging virus of all-time.
There were a couple of really positive data points released during the week, as discussed in the prior commentary. With over half of all S&P 500 companies reporting their quarterly results, 66% have now exceeded expectations. Analysts expect 4thQ profits to increase 26.3%, the best in 10 years. Furthermore, home sales continue to boom. 2003 was the best year ever for home sales. Moreover, the median home sale price increased 7.5%, the greatest since 1980. Lastly, Nortel(NT) announced a blow-out 4thQ, exceeding analyst's estimates by 308%. Voice-over-internet-protocol(VoIP) and wireless infrastructure products were stand-out performers for NT. Nortel's report bodes well for Sonus Networks(SONS), AudioCodes(AUDC) and Andrew Corporation(ANDW).
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