As bearish as I've been, I feel like the market wants to move higher. We have quarter end approaching and a lot of money managers are underinvested because they weren't fully confident the rally would last this long. It can take the big institutions/mutual funds, some time to build large positions. If continued strength is shown, those late to the game, may try to pile on, wash out the short sellers, who in return have to cover their positions and therefore send the market higher. The reason, I believe, many of the major players have been underweight is because they don't fully trust that we have seen the lows, nor is this a sustainable rally. Also something to keep on your radar is that there is some type of tax loophole for mutual funds, where they catch a tax break after holding onto securities for 90 days or more. We are right around that 90 period now. I think you get the idea (mut's may be getting ready to dump those shares they've held on to for 90+ days)
Sure, the market has been on a tear since the March 6 lows, but not much has fundamentally improved in that time. Some people may combat that with the fact the initial claims figure came in at almost 180k less than estimated and therefore the economy is improving. Sure that's great, but look into the details of that jobs report and you'll see that the euphoria may be short lived. Workers average hourly work week declined by 0.1%, which doesn't seem like much, but equates to roughly 225k jobs....which the actual claims number doesn't represent. There was also an adjustment made to the death/birth rate that is used, which made numbers a bit rosier than what's really going on.
Today was the Apple WWDC, which, from what I read, was a success. Apple announced a new version of its iPhone, the 3G S. It is going to be up to 4 times faster, have a longer battery life, have video capability, and come in a 32g version. The new phone is going to work on a different OS which will allow a more user friendly experience and now enable a copy and paste capability. More importantly, Apple has cut the price on its smaller versions of the iPhone and marked down a number of other products as well. They are really sucking up market share in the smart phone niche and will continue to do so with cutting edge products and price cuts. Typically you'd see the "sell the news" reaction from the market, but the stock only dropped 0.57%. This could warrant analyst estimates to be revised upward and give this stock some more room to move. Steve Jobs health is still in question, but the stock has shown significant strength during his hiatus. Love the company, their products and this is a stock you want to hold in your long term portfolio, but not at current prices.
Lastly, I'd like to make a few comments on Treasuries. Friday, we saw the 3-month, 6-month and 2-year yields jump 23.08%, 18.54% and 16.96%, respectively. Scary, to see such a selloff after successful recent short-term auctions. Today, we saw the 10-year trend towards 4% after jumping 6 basis points to 3.88%. The long end of the yield curve will be tested this week with supply looming on Wednesday and Thursday. The 10-year, $19 billion, auction results will be released Wednesday at 1p.m. and the 30-year, $11 billion, results released Thursday at 1p.m. As I've written about before, if the yields on the 10-yr get out of control (4% or higher creates problems), then you can kiss the housing recovery goodbye. The Fed's housing assumptions were based on the fact they could just keep printing money to buy Treasuries to cap rates at low levels. I think we all know now how that worked for them. Mortgage rates have moved from about 4.85% in mid March to 5.75% (depending on what broker you deal with) today. I saw something last week (don't have the info on hand for accurate figures) that said the banking industry made $6.9 billion in profit during the first month of the second quarter. $4.5 billion came from mortgage related activities. Now that rates have risen all that "activity" has slowed in kind. What's that tell you? Bank earnings, or should we say, lack there of, may be lower than estimated. How about all the jobs/rehires in the mortgage industry.... poof.... evaporated.... just as quickly as they were hired. The benefits of re-fi's and low mortgage rates to help the consumer?.... maybe some other time. And don't forget the other elephant in the room.... housing prices. Prices will remain in their downward spiral as mortgage rates rise and people have to sell their houses for less, because buyers cannot afford these mortgages on homes with high prices.
All this, yet the market continues to rise huh? We are living through truly historical times, so take this as an opportunity to look at what's going on around you and try and learn from it. Good luck out there!
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