Blog Archive for February 2009

                                                                       

 

After Friday’s 2.7% rally, stocks rose for the first week of the year. With the week’s spectacular 5.2% gain, the S&P trimmed its losses to 3.8% for the year. Stocks were able to overcome a number of negative earnings reports including earnings from Costco, Disney, and UPS. Surprisingly, the market also managed to rally despite horrible data from the U.S. Labor Department which reported an additional loss of 598,000 jobs in January. Due to continued economic weakness and a 7.6% unemployment rate, an economic recovery in 2009 appears to be quite remote. Friday’s jobs reports did appear to rally new support in Congress to complete the stimulus package which should pass sometime next week.

 

Ironically, the jobs report failed to support the government bond market which resumed its recent sell off. In response to the last weeks market recovery; the 10 year Treasury was particularly weak sending its yield to 2.98%. Despite the significant rise in interest rates, we continue to believe Treasuries remain overvalued. Today, we appear to be in a period of significant deflation; however the unprecedented level of government intervention will ultimately lead to higher inflation and interest rates.

 

Next week, the market’s attention should likely remain focused on Washington where Congress will attempt to complete the stimulus bill. Stocks should resume its recent rally; however we expect that stocks will later succumb to worsening U.S. economy. The latest market recovery has not deterred our expectation that stocks will continue to remain under pressure through 2009. Furthermore, a lasting market recovery will likely take time to materialize. Within the equity market, positive earnings growth from the defensive consumer staple and healthcare sectors should eventually be rewarded by the market. More importantly, we remain convinced that investors will increasingly seek the safety of the fixed income market, and bonds should continue to outperform. Within the bond market, we continue to find the greatest values in corporate and municipal bonds. Write to jim@campbellportfolios.com