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The Markets This Week

May 28, 2014 | Weekly Commentary

The stock market closed sharply higher with the broad Standard & Poor’s 500 index setting an all-time record Friday, finally punching through the 1900 level after several failures in recent weeks.

Volumes were low ahead of Monday’s Memorial Day holiday in the U.S. Macroeconomic data continued to be positive, though mildly so, and stocks continued their hesitant upward drift.

Next week is without much in the way of potentially market-moving data. Market participants point to the June 6 release of May non-farm payroll data and the unemployment rate as indicators that could provide the next pivot point.

Last week, the Dow Jones Industrial Average gained 115 points, or 0.7%, to 16,606.27. The S&P 500 closed up 23 points, to 1900.53, an all-time high, as noted. The Nasdaq Composite index rose 2.3%, or 95, to 4185.81. The Russell 2000 small-cap index tacked on 2.1% to 1126.19.

A positive tone Friday was set early by reassuring words from Russian President Vladimir Putin that his country would respect the results of Ukraine’s presidential election Sunday, says Kimberly Forrest, a senior equity analyst at Fort Pitt Capital Group. “We’ll see whether or not he respects that,” she adds.

Nevertheless, it had a calming influence on a light-volume day, she says, allowing the market’s generally upward bias of recent months to reassert itself.

Economic data continue a two-step-forward, one-step-back dance. Last week initial weekly jobless claims increased slightly but new-home sales improved. Friday, the Commerce Department said new U.S. single-family home sales rose to 433,000, modestly above consensus but better than March.

While economic news has been generally supportive of higher share prices, the market remains hesitant and still has a wait-and-see attitude, says Timothy Leach, chief investment officer at U.S. Bank Wealth Management. Investors are apprehensive about the effect on the economy of the Federal Reserve ending its quantitative-easing strategy later this year, he adds. It’s as if the market is trying to navigate a river of doubt, using each data point as a stone to hop across, he says.

Despite the worry, and with bonds still yielding so little, stocks as an asset class win out, argues Andrew Ahrens, who runs Ahrens Investment Partners. “You can’t get a return on your investment elsewhere…and by a process of elimination stocks are the place to be until interest rates go up,” he says.

Separately, the venerable Dow Theory remains in a bullish trend for stocks, according to Ned Davis Research. For youngsters, the theory goes that industrials make the goods and transportation firms ship them, so when there’s confirmation between the Dow and the Dow Jones Transportation Average, it’s a signal about stock trends.

Both the Dow and the DJTA are above their 200-day moving average. The Dow set a new record in the previous week and the DJTA did this past week.

(Source: Barrons Online)

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