"While volume should be relatively light next week, stocks likely to resume their advance as internals remain strong and fund managers underweight stocks."
Weekly Wrap : Indices spent the pre-holiday week consolidating recent gains... While lack of upside disappointed some, Briefing.com remained impressed by market's ability to absorb economic and political shocks without giving up much ground.
Of course the biggest surprise of the week was the announcement by Senator Jeffords of Vermont that he was bolting the Republican Party and becoming an Independent... Decision changed the balance of power in the Senate overnight, with Democrats assuming leadership role... Shift could make it more difficult for the Bush Administration to push through its agenda... Uncertainty prompted investors to unload "Bush stocks," such as defense, drug, tobacco and oil/oil services.
Gloomy set of economic data also dampened enthusiasm a bit, as investors again questioning timing of economic recovery... Of particular note were the sharp drop in New Home Sales (largest decline in four years), the much larger than expect decline in Durable Goods Orders (-5%), the sizeable downward revision to Q1 GDP from 2.0% to 1.3% and the 15k jump in Initial Claims, which brought the 4-wk average up to 403K, or just below the recently established 9-yr high of 406k... Added to the bearish data were guarded comments from the Fed Chairman to the Economic Club of NY... Greenspan stated that the period of sub-par growth is not yet over, and that further policy response may be needed... Additional rate cuts are positive for stocks, but anxiety over depth of slowdown limited buying... Group hit hardest by the week's gloomy data - housing... After holding up remarkably well over the past year, investors beginning to fear a top in the sector.
A nasty semiconductor book-to-bill report weighed on techs briefly, as did soft earnings/negative guidance from a few second tier telecom equipment companies... Even so, sector held its own with gains coming from select software, storage and hardware companies.
Elsewhere, we saw continued strength in the biotech and fuel cell areas... Both have benefitted from positive news cycles in past couple of weeks.
While volume should be relatively light next week, stocks likely to resume their advance as internals remain strong and fund managers underweight stocks. Biggest risk to upside comes from Friday's NAPM and employment data... Could see some selling into the reports beginning some time Thursday. |
