In the face of more NEGATIVE than POSITIVE developments, the stock markets had their best week since last July.  Below is a succinct list of last week’s events:

Positives:

1) Japanese stocks bounce, reactor mania calms but not out of the woods
2) Initial Claims below 390k for 5th week in past 7
3) New Home Sales awful but keeps new homes off the market to better suck up existing ones
4) French biz confidence highest since Oct ’08 and German IFO remains near best on record
5) Trichet reaffirms desire to hike rates to quell inflation
6) Philippines joins fight against inflation by raising rates

Negatives:

1) University of Michigan confidence falls 10 pts from Feb, 1 yr inflation expectations at 2 1/2 year high
2) Portugal heading into hands of EU/IMF as gov’t falls, Irish yields also spike
3) Feb Durable Goods disappoint even with easy comparison
4) Existing Home Sales well below estimates
5) Oil prices back near recent high as bombs drop on Libya
6) UK CPI now at 4.4%

Source: The Big Picture

Just like that, it was time to embrace risk again.

Quickly, almost impatiently, the U.S. stock market has rebounded from its first correction of 2011 to reclaim the ground it held just before the earthquake and tsunami shook Japan. Never mind that troops are firing on Syrian protesters, oil prices are at their highest level in more than two years, and Japanese cities are still sorting through radiation in their tap water. All that matters is that things weren’t getting worse, and the rally had been interrupted long enough.

So U.S. stocks have bounced back from their 6.4% correction, and are up 4.5% since March 16. They weren’t alone: Commodities, from copper to cotton rebounded, too, and gold surged to a new record. Stock benchmarks in 13 of the planet’s 15 biggest economies rallied above their levels before the Japanese tragedy, even though, as Paul Hickey of Bespoke Investment Group says, “the ultimate scope of the damage [to the global economy] still remains a question.” Besides Japan itself, only the blue-chip DAX from export-dependent Germany is still in the red, and just barely.

The message? A bull run propelled by government-issued liquidity might be interrupted by nature’s wrath, but it may only be reversed when that Federal fuel runs out. That’s coming soon, but it isn’t here yet. So traders looking beyond Japan focused on corporate America’s still-resilient profits, and its appetite for deals. As companies from AT&T (ticker: T) to Charles Schwab (SCHW) swooped in to buy their rivals, Oracle (ORCL) reported a 78% jump in quarterly income, and Accenture (ACN), Red Hat (RHT) and Tiffany’s (TIF) all brandished results that surpassed Wall Street’s expectations.

The news wasn’t all good, but what mattered was the mood. Sales of new homes fell a disconcerting 16.9% in February, orders for big-ticket items shrank and Portugal’s parliament voted down a plan to cut its deficit. And, fighting hard to join the ranks of banks healthy enough to pay dividends, Citigroup (C) said it would hack down its bloated float of outstanding shares with a one-for-10 reverse stock split, and then hand out a one-penny payout.

But it was a “risk-on” week, and the Dow Jones Industrial Average rallied in six of the past seven sessions, and ended last week up 362, or 3.1%, at 12,221. It was the blue chips’ biggest week since early July. The Standard & Poor’s 500 Index snagged just its second gain in five weeks, but its best one since early December. The index is still down 1% this month, but is up 4.5% this year. The Nasdaq Composite Index jumped by 99, or 3.8%, to 2743, while the Russell 2000 rallied 29, or 3.7%, to 824.

While the 6.4%, one-month correction wiped off some of the rampant bullishness seen earlier this year, this swift rebound has returned the market to more neutral territory. A week ago, at the height of Japan-related selling, eight out of 10 S&P sectors were oversold. Today, none are.

“Satisfying as this strong rebound is, it may be as temporary as the preceding selloff,” notes Jan Loeys, JPMorgan’s global head of asset allocation. With the escalating war in Libya, disruption to Japan’s supply chains and pressure on peripheral European countries, the “fundamental conditions have become more mixed in recent weeks.” Any further gains in risky asset prices are likely to be an uneven grind upward—unlike the steady, unvarying levitation from September to March.

When companies begin reporting earnings in April, investors will be scouring for signs of margin damage. “Corporations now have several excuses that seem to resonate on Wall Street—from bad weather in January to the Middle East to the Japanese earthquake impacting the supply chain or sentiment,” writes Adam Parker, Morgan Stanley’s U.S. equity strategist. Already, companies like Best Buy (BBY) and Cree (CREE) have braced investors for slower sales, and Parker thinks projected 2012 margins are too high.

That worry has caught on. Anticipating, perhaps, a short-term dip in demand in the wake of Japan’s tragedy, analysts are trimming estimates even for materials stocks, which benefit from the weakening dollar and rising commodity prices. Over the past four weeks, in fact, analysts have raised estimates for 506 companies in the S&P 1500, but cut them for 450. This produces upward revisions for a net 56 stocks, or just 3.7% of the index—the most circumspect view in months. “If there’s anything positive to say about the downtrend in analyst sentiment,” says Hickey, “it is that the expectations bar is being set lower and lower” (Source: Barrons Online).

Last week, US Stocks and Foreign stocks increased and Bonds decreased. During the last 12 months, U.S. STOCKS outperformed BONDS.

Returns through 3-25-2011	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap  Aggregate Index	-.6	.4	5.4	5.4	5.9	5.5
US Stocks-Standard & Poor’s 500	2.7	4.9	11.5	-4.2	-1.9	1.8
Foreign Stocks- MS EAFE Developed Countries	3.4	2.3	8.3	– 5.7	-1.4	3.0

Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.

“There are two primary choices in life: to accept conditions as they exist, or accept the responsibility for changing them.”

Denis Waitley

The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, every Wednesday evening from 6-7 PM. 

This week, Laurie will be joined by Bill MacNair, Consultant and environmental engineer and Attorney Anthony Rachuba of Fitzpatrick, Lentz and Bubba to discuss What Is Marcellus Shale and how it will affect many area residents in their financial choices and estate planning.

Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

QUESTION: I have a large payment to make on my 2010 income tax return and you told me to pay it as late as 4/15/11. If I pay it on 4/15/11, the IRS will receive it after 4/15/11 so how can I prove the payment was made on time?

ANSWER: I recommend mailing it by U.S. certified mail. Under Regulation 1.7502-1(c)(2), your receipt is postmarked by the postal employee to whom the letter is presented and this receipt is proof of timely payment.

Feel free to contact me if you or someone you know has this type of situation. Financial Planning and tax planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.

Crash and Burn! All of my March Madness picks are kaput. I do not recall any year when the seeds were as irrelevant as this year. I have to admit that the losing teams appeared to have individuals with superior talent to those on the winning teams. So, I attribute the winning teams’ success in reaching the Final 4 to something intangible. Perhaps Vince Lombardi best described my point: “The achievements of a team are the results of a COMBINED EFFORT of each individual.”