MARKET WEEK: MARCH 28, 2011

The Markets Investors brushed aside disappointing housing data and debt concerns in Europe to push domestic equities higher for the week. The Dow and S&P 500 regained 12,000 and 1,300 respectively and both small caps and the tech-heavy Nasdaq saw new enthusiasm. That renewed interest in stocks helped send the price of 10-year Treasuries back down as yields rose.

Market/Index 2010 Close Prior Week As of 3/25 Week Change YTD Change DJIA 11577.51 11858.52 12220.59 3.05% 5.55% Nasdaq 2652.87 2643.67 2743.06 3.76% 3.40% S&P 500 1257.64 1279.21 1313.80 2.70% 4.47% Russell 2000 783.65 794.66 823.85 3.67% 5.13% Global Dow 2087.44 2093.63 2166.09 3.46% 3.77% Fed. Funds .25% .25% .25% 0 bps 0 bps 10-year Treasuries 3.30% 3.28% 3.46% 18 bps 16 bps Last Week's Headlines New-home sales plummeted almost 17% in February, hitting the lowest point since record-keeping began in 1963, the Commerce Department said. Sales also were down 28% from the previous February. Hardest hit were sales in the Northeast, now down 50% from a year ago, and the Midwest, down almost 41% in the same time. Sales of existing homes also fell sharply in February, according to the National Association of Realtors®. The 9.6% decline followed three straight months of increases. Though they were 26.4% higher than last July's low, sales were still down 2.8% from February 2010. All-cash purchases hit a record 33% of all sales, and distressed homes sold at a discount represented 39% of total sales. Durable goods orders fell in February, according to the Commerce Department. The 0.9% drop was the fourth decline in five months. New orders for capital goods (other than defense-related equipment and aircraft), which indicate the level of business spending, were down 1.3%. Despite another downgrade of the country's sovereign debt, the Portuguese parliament rejected a proposed combination of tax increases and budget cuts, potentially increasing the need for a bailout from fellow European Union members. The country's prime minister, who proposed the austerity package, resigned and a new government will need to be formed. Also, Moody's downgraded the credit rating of 30 Spanish banks, citing as one reason pressures from a recent deterioration in that country's sovereign debt, which was downgraded earlier this month. The final figure for Q4 gross domestic product (GDP) showed the economy grew at an annualized rate of 3.1%, higher than previously thought and higher than Q3's 2.6%. For all of 2010, the economy grew almost 3%, a vast improvement from 2009's decline of 2.6%. After-tax corporate profits were up 20.4% in 2010 compared to 2009's 5.1% increase. Eye on the Week Ahead Investors will watch to see if the market continues to recover from its recent bruising and extends its upward march. A data-intensive Friday will see new employment, construction, and manufacturing indicators. Key dates and data releases: personal income/spending (3/28); home prices (3/29); unemployment/payrolls, construction spending, U.S. manufacturing (4/1). Data source: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. Equities data reflect price change, not total return. The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment. --see disclaimer below--

Week in Review: Strong earnings, job numbers unable to allay investor concerns

U.S. economic news

Fed may take more "measured approach" with additional economic stimulus
The U.S. Federal Reserve Board's long awaited quantitative easing policy will most likely be announced following its next policy meeting on November 3. The Wall Street Journal noted this week that the Fed is likely to buy "a few hundred billion" dollars in U.S. Treasury bonds over a period of "several months" to pressure interest rates and stimulate the economy. This amount is well below the $500 billion to $2 trillion figures that have been projected by some analysts and industry experts.


Jobless claims drop to three-month low
The U.S. Department of Labor reported this week that initial unemployment claims unexpectedly fell by 21,000 to 434,000 in the week ended October 23. This was the second weekly drop in the number of new unemployment applicants in the past two weeks. Some economists believe that the latest figures could be an indication that the job market is finally stabilizing.


New home sales climb in September
The U.S. Department of Commerce said that the number of new home sales in September grew 6.6% from August to a seasonally adjusted annual level of 307,000 units. The jump in sales is potentially good news for the battered housing market, which saw sales throughout most of the summer that were the slowest on record since 1963.


Consumer confidence edges up
According to several leading economists, concerns about the job market appear to be keeping U.S. consumer sentiment largely in check. The Conference Board's Consumer Confidence Index increased only slightly to 50.2 in October from a revised 48.6 in September. September's reading was the lowest since February and down sharply from 53.2 in August. A reading of 90 indicates a healthy economy.


U.S. and global corporate news


Exxon Mobil, the largest U.S. oil company by market value, reported third-quarter earnings of $7.35 billion, up from $4.73 billion a year earlier. Strong refining margins, higher commodity prices, and a 20% jump in oil production all contributed to this 55% jump in net income, surpassing analyst projections.


Ford Motor posted record third-quarter earnings gains of 70%, with net income rising to $1.7 billion from $997 million a year ago. The automaker cited a strong product line, momentum in North America, and continued success at Ford Credit as some of the reasons for the company's dramatic turnaround. It was the sixth consecutive quarterly profit for the only U.S. carmaker who avoided a bankruptcy filing last year. Ford's previous best third-quarter earnings were $1.1 billion in 1997.


ArcelorMittal, the world's largest steelmaker, said net profit for the three months ended September 30 was $1.35 billion compared with $910 million for the same period a year earlier. Despite a 48% increase in profits, the Luxembourg-based company cautioned that the remainder of 2010 will likely be difficult, and the firm forecasted lower prices and weak demand.


Procter & Gamble reported that its fiscal first-quarter earnings declined 6.8%, to $3.08 billion from $3.31 billion a year earlier, as higher commodity costs negatively impacted margins. Still, the latest profit figures for the world's largest consumer product company exceeded some analysts' estimates.

Global economic news

U.K.'s economy expands in third quarter
Britain's economy grew at a faster pace than projected during the third quarter, according to a preliminary estimate from the Office for National Statistics. Gross domestic product increased 0.8% between July and September from the second quarter. Most economists had projected growth of only 0.4% for the quarter, following the previous quarter's 1.2% growth rate. After the better-than-expected GDP figures were released, Standard & Poor's raised Britain's credit rating to stable from negative.


Bank of Japan revises growth forecast downward, holds interest rate steady
Japan's central bank said in its October outlook report that the country's economy will grow 2.1% in the year through March 2011 and 1.8% the following year. In July the bank had forecast growth of 2.6% and 1.9%, respectively. The bank, in a statement addressing its moderated forecast, cited declining demand in overseas markets such as the United States and China, the approaching end of government stimulus measures, and the strongly performing yen, which has risen to near historic levels against the dollar. In a separate move, the Bank of Japan voted to keep its key interest rate untouched at 0% to 0.1%.


German consumer confidence unchanged
GfK AG, the Nuremberg-based market research firm, said that its consumer sentiment index will remain at 4.9 in November, its highest level since May 2008. The figure is based on a survey of nearly 2,000 people. German unemployment declined for a fifteenth-straight month in October.


Switzerland consumer index falls to lowest level in six months
Switzerland's economic recovery may be stalling, at least according to one consumer indicator. UBS AG's index of consumption dropped to 1.7 in September from 1.95 in August. The latest figure is the lowest index reading since March. The consumer indicator is based on new car sales, retail sales, overnight hotel stays within the country by Swiss residents, consumer confidence, and UBS credit card transactions.

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RECESSION OFFICIAL

NEW YORK (CNNMoney.com) -- The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

The NBER said that the deterioration in the labor market throughout 2008 was one key reason why it decided to state that the recession began last year.

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said.

In addition, the NBER also considers the gross domestic product, which is the reading most typically associated with a recession in the general public.

Many people erroneously believe that a recession is defined by two consecutive quarters of economic activity declining. That has yet to take place during this recession.

This downturn longer than most

The NBER did not give any reasons or causes of the recession. But it is widely accepted that the housing downturn, which started in 2006, is a primary cause of the broader economic malaise.

The fall of housing prices from peak levels reached earlier this decade cut deeply into home building and home purchases. This also caused a sharp rise in mortgage foreclosures, which in turn resulted in losses of hundreds of billions of dollars among the nation's leading banks and a tightening of credit.

The current recession is one of the longest downturns since the Great Depression of the 1930's.

The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.

In a statement, White House Deputy Press Secretary Tony Fratto said that even though the recession is now official, it is more important to focus on the steps being taken to fix the economy.

"The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that's where we'll continue to focus," he said. "Addressing these areas will do the most right now to return the economy to growth and job creation."

President-elect Obama's transition team did not have an immediate comment on the recession announcement. But other top Democrats said this is further proof of the need for another economic stimulus package, which Obama has advocated.
"With rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet," said Senate Majority Leader Harry Reid in a statement. "With the cooperation of our Republican colleagues, we intend to send a plan to the White House as soon as possible following President-elect Obama's inauguration next month."

How long will it go?

Nonetheless, several economists said the real concern is that there is no end in sight for the downturn.

Some suggested that the best case scenario for the economy is that it would reach bottom in the second quarter of 2009. And even if that happens, that would still make this recession the longest since the Great Depression.

Rich Yamarone, director of economic research at Argus Research, said the only good news for the economy is that some of the steps already taken by the government earlier this year could start to spur growth soon. For example, he said interest rate cuts by the Federal Reserve, which started in September 2007, "should be working their magic any day now."

In February, Congress passed a $170 billion tax rebate meant to stimulate the economy. But that only boosted GDP during the second quarter.

The financial market and credit crisis worsened during this summer, prompting Congress, the Treasury Department and the Fed to pump trillions of dollars into the economy through a variety of programs, including a $700 billion bailout of banks and Wall Street firms and hundreds of billions of lending by the Fed to major companies and lenders.

But Lakshman Achuthan, managing director of Economic Cycle Research Institute, said that at this point, the only solution for the recession is time.

"All the hand waving and real cash that policymakers are throwing at the problem won't change the fact we're stuck in this nasty recession," he said. "The ultimate cure of a recession is letting it run its course."

Achuthan's research firm tracks weekly leading economic indicators that are supposed to signal a change in direction for the economy four or five months ahead of time. Those indicators are continuing to fall at a record pace.
Still, he said he's not worried about the current recession turning into a depression, as many Americans fear.3

"Even with indicators in a tailspin, this still is only a very severe recession," he said. "There's lots of gloom, but we don't see doom."

By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 1, 2008: 3:27 PM ET

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