SO, OUR FUTURE ISN’T WHAT IT used to be, but that hasn’t stopped traders from eagerly looking ahead. Stocks kicked off this month with a 3.7% three-day pop that already has some breathlessly hailing December as the new January, and which handily wiped out November’s 0.2% correction, itself just the first loss in three months. Instead of taking it easy, money managers are raring to go, perhaps because quite a few are lagging behind the market after its latest spirited spurt.

The early trickle of 2011 forecasts from Wall Street firms dutifully lists the roster of risks—fiscal constraints, rising commodity costs, the fading high from the central bank’s money-printing spree, Europe’s debt bill, China’s constricting credit and tension in Korea. But no one is calling for calamity, and the consensus seems to expect the artificial swell of money and benign interest rates to goose corporate profits while the economy plods along.

Even Friday’s jobs report, which showed just 39,000 new workers hired in November, failed to thwart the market or rattle payroll stocks from Automatic Data Processing (ticker: ADP) to Paychex (PAYX). Protracted unemployment will merely goad our government to extend its policy largesse, and while we may lament the fiscal wantonness, we’re not betting against its impact in the stock market— just yet. An extension of the Bush tax cuts or monetary stimuli from Europe can further hurt those betting against the market.

Meanwhile, those who have jobs and who’ve paid down some debt are shopping. November retail sales were better than expected, consumer confidence recently ticked to a five-month high, and vehicle sales exceeded an annualized 12 million each of the past two months. Despite sluggish growth, “pent-up demand by businesses, along with plenty of cash and low interest rates, provide fuel for growth,” says a well known chief market strategist. Improving profit margins also helped companies report better-than-expected profits for seven straight quarters, and Deutsche Bank chief strategist Binky Chadha argues that margins haven’t peaked yet.

The Dow Jones Industrial Average added 291, or 2.6%, to finish last week at 11,382. The Standard & Poor’s 500 is a point from reclaiming its 2010 peak. The Nasdaq Composite Index tacked on 57, or 2.2%, to 2591, while the Russell 2000 racked up its fourth gain in five weeks to jump 24, or 3.2%, to 756. The yield on 10-year Treasuries rose above 3%, the highest since July, while crude oil climbed to a 26-month peak above $89.

Today, the cost of money has never been lower, corporate bond yields have never been lower, and company balance sheets have never been stronger, notes Goldman Sachs strategist David Kostin. For example, nonfinancial Standard & Poor’s 500 companies hold more than $1 trillion in cash, roughly 10% of the market’s capitalization.

Goldman expects stock buybacks to increase 25% in 2011, dividends to grow 11% and companies to plow $240 billion in cash toward mergers. The firm’s economists see the global economy growing 4.6% next year, while abundant liquidity holds the 10-year yield to 3.25% by late next year. Against this benign backdrop, Kostin is penciling in profit growth of 12% in 2011 and sees the S&P 500 pushing 1450 in a year.

With Wall Street so bullish, it isn’t surprising to find professionals’ buying powder depleting. Of course, cash as a percentage of stock mutual funds’ assets decline as their stock portfolios rally, but “we are currently as fully invested as we were at the 2000 and 2007 peaks,” notes Ned Davis of Ned Davis Research.

So the question remains whether indifferent individual investors will regain their appetite for stocks in 2011. They have yanked money from U.S. stock mutual funds nearly every week this fall even as the market rallied. Will rising stock prices and Wall Street’s enthusiasm change their mind? (Source: Barrons Online)

The Weekly Commentary is in an abbreviated format this week.  I spent lots of time with family during the last week.  Our house is the Thanksgiving gathering spot for my wife Jo Anne’s family as well as my own.  And, I am out of town on Monday, November 29 taking care of a fever.  You hunters know the remedy for this sickness.  I will let you know if I am successful in its treatment.

GO LEHIGH!  Beat Delaware. 

What a big win for the Brown & White.  And, for the Patriot League, too. The Mountain Hawks know how to play “D”.

I have your attention, right?  Wow, a 2011 forecast!  Not so fast.  Before I attempt to guess about the future, let me first warn you that we are entering the time of the year for pundits to make apparently irrefutable forecasts of their view  of 2011. But, be wary of such forecasts.  Why?  Because stuff happens.  Unexpectedly.  As a result, forecasters utterly misread outcomes.  For example, who could have forecast a volcanic eruption in 2010 that played havoc with air travel in Europe, the Greece/Ireland crisis, the tragic floods in Pakistan, the earthquake in Haiti, the massive oil spill in the gulf.  These were some of the biggest events of 2010, and each left its mark on the year 2011 both economically and psychologically. 

 

“Winning is a habit. Watch your thoughts, they become your beliefs. Watch your beliefs, they become your words. Watch your words, they become your actions. Watch your actions, they become your habits. Watch your habits, they become your character.”

Vince Lombardi as repeated 11-24-10 by Iron Mike Ditka during his LifePath Luncheon speech at the Holiday Inn Conference Center Lehigh Valley. 

VIOLENCE AND FEAR OF FINANCIAL crises abroad cast a shadow on trading at home last week, but it wasn’t long enough to depress the U.S. market severely.

North Korea’s deadly attack on the South Korean island of Yeonpyeong—170 rounds in all—seemed nothing short of an act of war, though propagandists for the North’s dictator, Kim Jong Il, thought it best to release a photo of him surveying bottles of soy sauce. Police in Rio de Janeiro battled shantytown gangs, which might have made more headlines in a week without the Thanksgiving holiday. At center stage was Ireland’s sovereign-debt bailout of roughly 85 billion euros (U.S. $113 billion), and fears that Portugal and Spain will be next.

The euro dropped 3% on the week, to $1.32, though that’s nowhere near the low of $1.19 it reached earlier this year when the currency’s future was being called into question.

U.S. market indexes mostly slumped, with the Dow Jones Industrial Average down 1% to 11,092 for the four trading sessions, with Friday’s put to bed after a half-day. The Standard & Poor’s 500 Index fell 0.9% to 1189.40. But the Nasdaq Composite showed signs of life, rising 0.7% to 2534.56, as did the components of the Russell 2000 index, which gained 1.2%.

Financial stocks posted the biggest decline for the week as investors shied away from risky assets. Oil and gas shares also didn’t do well, though oil prices rose nearly 3% for the week to more than $86 per barrel. Natural gas prices shot up 5.6% to nearly $4.40 per million British thermal units.

“The reason the stock market didn’t fall more this past week is that there is a perception that while these are large problems, it’s likely European officials will expand their bailout facilities, and the ECB will come in and buy some of these government securities to stabilize the market,” said Ed Yardeni, chief investment strategist at Yardeni Research based in Brookville, N.Y. “Clearly the bond vigilantes have gone from getting riled up about Ireland to now focusing on Portugal and Spain, and the question is if European authorities can re-establish some order in the capital markets.”

The European Commission suggested doubling the size of Europe’s €440 billion bailout fund, an idea promptly dismissed by Germany. Eurozone members are likely to push for some kind of rescue package in Portugal to restore market confidence and preempt further instability, according to Eurasia Group analysts. In Spain, the government insists it can slash deficits, though its rising bond yields last week underscored fear about unemployment and low productivity (Source: Barrons Online).

The economy continues to give us mixed signals. Here is a succinct list of what happened last week:

Positives
1) Ireland getting bank bailout, fire put out for now
2) China, Hong Kong and South Korea all take steps to battle rising inflation
3) Philly Fed report on economic activity much better than expected and at best level since Dec ’09
4) Initial Unemployment Claims fall below 440k for 2nd straight week
5) US Retail Sales show upside surprise
6) Germany Nov ZEW (indicator of economic sentiment) unexpectedly rises
7) From contrarian view, bulls in AAII (American Assn of Individual Investors) fall to 40 from 57.6 which was highest since Jan ’07

Negatives
1) China, Hong Kong and South Korea all take steps to slow things down
2) Multi-family housing “starts” to fall sharply
3) NY report on manufacturing activity much weaker than expected (but 6 mo outlook rises)
4) Interest rates move higher, average 30 yr mortgage rate at 2 mo high
5) Mortgage Refi’s fall 17%, purchases down 5%
6) Municipal bonds come under pressure

President Franklin D. Roosevelt set Thanksgiving as the Thursday before last of November as Thanksgiving Day in the year 1939.  His critics claimed he did so to make the Christmas shopping season longer and stimulate the economy.

Valley National professionals use income tax and financial planning research software to analyze and research complex questions and issues of their clients. Valley National purchases it from Commerce Clearing House (CCH). The CCH software is extensive and very detailed. And, it is linked to the income tax return preparation software. This link permits the tax return preparer to be on top of any tax issue involving any tax form just by a click of his or her mouse.

“Winning is not everything, but the effort to win is.”

Zig Ziglar