Archives For Todd Burkhalter

Weekly Update May 7, 2012

Last week was a rough one for U.S. stocks. The markets started off the week positive, pushed upward by positive corporate earnings, but retreated the last three days to close at a low point, hammered by a disappointing jobs report and renewed fears about a stuttering economic recovery. The S&P lost 2.44% – its worst weekly performance this year, while the Dow lost 1.44% and the Nasdaq fell 3.68%.[i]

The week’s sell off began on Wednesday when the latest ADP Employment Report – usually released before the official Labor Department report – suggested that employment had improved by less than expected. The news was confirmed on Friday when the official numbers showed that employers had added
just 115,000 jobs in April, falling well short of the expected 170,000 new jobs. Although the unemployment rate dropped to 8.1%, we can’t get excited about it because the fall is primarily due to job-seekers giving up their job search.  If we see continued slowness in the job market, it is possible that the Federal Reserve will step up efforts to boost the economy again. Since inflation is still well below the danger zone, the Fed still has room to take action.


Solid corporate earnings have provided a breath of fresh air, showing that business is still humming along. First-quarter earnings among companies in the S&P 500 are currently at 7.8%, well ahead of expectations. However, companies are forecasting a much slower second quarter, a sign that executives are bracing for declining sales.[ii] Analysts believe that a warm March and an early Easter may have shifted sales to March, cutting into second quarter revenues. Please also keep in mind that companies often sandbag their forecasts in order to artificially beat expectations when the official earnings are posted.

Last week’s poor market performance and disappointing jobs report reminds us that our economy and investors nerves are still “recovering.” Just as an injured person who undergoes a major surgery will have good days and bad days while recovering, so our healing economy will experience ups and downs.


Weekly Update – April 30, 2012

The trading week started off slowly as investors absorbed further troubling news
about the state of the global economy: Disappointing manufacturing reports from
China, France, and Germany, plus news that the Netherlands might be heading for
its own fiscal crisis.[i]

Things turned around later in the week though, as domestic equities closed higher on positive news surrounding U.S. corporate earnings. The Dow managed to recoup all its April losses, closing up 1.53% for the week, while the S&P rose 1.80%, and the Nasdaq gained 2.29%. For the moment, corporate earnings are providing a positive counterpoint to lackluster economic news.


The state of our nation’s economy was also in the spotlight last week. Gross
Domestic Product (GDP) grew by 2.2% in the first quarter, down from 3.0% in the
fourth quarter of 2011. The biggest factors in the slowdown were slower
inventory-building by private companies and less defense spending by the
federal government. Thankfully, consumer spending – the largest contributor to
GDP – is still strengthening, which should lead to ongoing improvement in our
overall economic picture.[ii]
In keeping with its upbeat tone, the Fed added 20 basis points to its 2012 GDP forecast, increasing predicted growth to between 2.4%-2.9% this year. The Fed also agreed to keep interest rates between 0.00%-0.25%, and expects inflation to remain below 2.0% for the next two years. During the follow-up press conference, Chairman Ben Bernanke stated that the Fed was still prepared to take an active role in the recovery.[iii]

Unemployment claims continue to remain near a three-month high, indicating that employers have stepped-up layoffs and are reluctant to increase hiring. However,
economists believe that the mild winter distorted first-quarter hiring, making it appear unusually strong. Overall, the economy has continued to add jobs and unemployment is falling well ahead of estimates.[iv]


Regardless of what happens with short-term market movements and news from abroad, we are
grateful to see that the U.S. economy is recovering from the financial crisis better than any other economy in the world right now. This is likely a major reason why we have seen domestic equities performing so well lately – when compared with the rest of the world, U.S. companies are the prettiest girl at the dance. While
there are sure to be bumps in the road ahead, corporate balance sheets are strong, the job market is slowly improving, consumers are still spending, and our economy is chugging along.






Personal Income and Outlays, Chicago PMI, Dallas Fed Mfg. Survey


Tuesday: Motor Vehicle Sales, ISM Mfg. Index, Construction Spending


Wednesday: ADP Employment Report, Factory Orders, EIA Petroleum Status Report


Thursday: Jobless Claims, Productivity and Costs, ISM Non-Mfg. Index

Friday: Employment Situation




Weekly Update – April 23, 2012

Strong corporate earnings caused stocks to rally last week for the first time this
month. The S&P closed up 0.6% for the week, while the Dow closed 1.4%
higher, and the Nasdaq trimmed 0.36%. With no domestic economic reports
released on Friday, traders turned their attention back to lingering concerns over
Europe and China, and markets lost some momentum in afternoon trading. Even so,
last week’s positive earnings reports are alleviating concerns about the
economy and making investors feel more confident about the rallies we’ve seen
this year. With 23% of S&P 500 companies having reported results so far,
more than four out of five have beaten expectations by an average of 8.8%.
Profit growth in this quarter has also been up 6.2%, according to Thomson
Reuters Proprietary Research.[i]

While some analysts are concerned that stocks are poised to repeat their 2010 and
2011 performance – when a mid-year retreat followed an April peak – there are
many differences between the economy of the past two years and today. The 2010
and 2011 pullbacks largely occurred because of recession fears and shocks
created by the Japanese Tsunami, but the U.S. economy is on more solid footing
than at any other time in the recovery. Current indicators point to slow and
steady economic growth, and we have already moved away from index highs. If we
continue to see positive earnings among the nearly 180 S&P 500 components
reporting next week, we may see markets sustain their upward trajectory.[ii]

Investors will also be closely watching Tuesday’s meeting of the Federal Reserve FOMC.
With an optimistic economic outlook and improving jobs situation, it is
unlikely that the Fed will conduct another round of bond purchases. Even so, we
will be monitoring the Fed’s statement on Wednesday, and will be certain to
fill you in on any outstanding developments. I hope you have a great week!