Looks Like Another Good Week; Dow Continues to Lead – Mostly; Carry Trade Back In Full Force

May 17, 2007 at 2:11 pm  ·  Category: Foreign Exchange, Inflation, Japan, Market Commentary

It’s looking like another good week for the stock market.  Here’s how the action looks through 4 days:

Dow: +151, to 13,477

S&P: +7, to 1513

Nasdaq: -23, to 2539

Russell 2000: -14, to 816

Again, we are seeing the leadership of the mega-caps vs. mid caps, small caps and tech with the Dow up 6% over the last month (23 trading days), the S&P 500 3%, the Nasdaq less than 1% and the Russell 2000 down about 2%.  Make no mistake about it: big caps and especially the mega caps of the Dow are driving the action.

I did, however, notice one interesting thing on the subject of Dow leadership: The S&P actually outperformed the Dow on the two most recent big up days, Wednesday and last Friday.  The S&P was up .96% last Friday beating the Dow which was up .84%.  And again yesterday the S&P was up .86% with the Dow trailing slightly at .77%.

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A real good piece of news this week was the somewhat lower than expected Consumer Price Index (CPI) number out by the Labor Department on Tuesday morning.  The CPI was up .4% from April, below the .5% consensus, and core CPI was in line with expectations at .2%.  Along with last Friday’s flat core PPI, these are two pretty good recent inflation numbers. 

“I read [the CPI data] as very bullish for the economy.  I suspect that the reasons for the Fed to tighten have largely disappeared,” said Timothy Rogers, Chief Economist at Briefing.com (subscription required).

The Dow was up almost 140 points and the S&P 13 points around 1pm Tuesday until the National Association of Homebuilder’s reported that builder confidence had dropped down to 30 from 33 in April.  The Dow dropped about 100 points over the last 3 hours of trading and the S&P 14 points actually finishing the day in negative territory (down about 2 points).

The Wall Street Journal reported on Wednesday morning that Sears Chairman, and much admired investor (Cramer calls him this generations Warren Buffett), Eddie Lampert had acquired a stake of about 15 million shares, more than $800 million worth, in Citigroup (C)

Bausch & Lomb also announced that it had agreed to be acquired by private equity firm Warburg Pincus for $65 a share, sending it’s shares up almost 10%.

“There is excitement about the [deal making] activity and that is helping to provide confidence”, said Alan Gayle, senior investment strategist at Trusco Capital Management (subscription required).

The Dow was up 104 and the S&P 13.

Two more private equity deals today, Blackstone’s acquisition of Alliance Data Systems for $6.4 billion and 2 private equity firms acquisition of Axciom for $2.25 billion, are signs that the deal making environment continues to be robust.

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Japan’s Cabinet Office reported last night (Thursday in Japan) that 1st quarter Real GDP was up a slightly less than expected .6%.  The BoJ also kept their target interest rate at .5%.  These two events set the stage for the Yen/$ to rally up above 121, approaching near term highs prior to the Feb 27 sell-off above the 122 level.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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