Saturday, May 28, 2005

Market Week in Review

S&P 500 1,198.78 +.80%

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BOTTOM LINE: Overall, last week's market performance was positive. The advance/decline rose, most sectors gained and volume was light on the week. Commodities, Small-caps and Tech outperformed as economic reports exceeded expectations. Measures of investor anxiety were mostly lower on the week. The AAII % Bulls rose again and is now at average levels. Mortgage rates continued to drop and are now only 44 basis points away from all-time lows set in June 2003. Energy prices rose as crude inventories registered a weekly decline. However, overall oil fundamentals actually deteriorated further. Oil supplies last week were 11% higher than a year ago at this time. Crude inventories were 24 million barrels, or 7.8%, above the five-year average. Stockpiles have now risen in 13 of the last 15 weeks. API implied US crude demand last week was down 3.03% from a year earlier. Finally, the contango spread in the oil futures market is finally beginning to narrow, which is bearish for crude. Fed comments this week were relatively hawkish. This will likely remain the case until closer to the June meeting, thus keeping downward pressure on commodity prices. The fact that long-term rates declined this week even with strong economic reports leads me to believe a breach of the 4.0% level on the 10-year T-note is imminent as global growth continues to slow and inflation fears further diminish.

*5-day % Change

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