Weekly recap

Briefing:

Weekly Wrap

Last Update: 23-Mar-07 16:35 ET

It was an amazing week. The broader indices were all up more than 3%. The Dow Jones Industrial average was up every day. The S&P 500 index was up every day except Thursday, when it fell 0.50 points

The tone has dramatically improved as bearish factors such as the Shanghai market plunge, the unwinding of yen-carry trades, and even subprime mortgage problems had little impact this week.

The focus remained on the macro issues. There was very little corporate news of broad impact. The underlying concern about the strength of the economy and whether factors such as housing weakness would lead to a recession remained the main concern. This week, the news was good.

The most important event was the Fed policy statement on Wednesday. The market rallied in advance of the report in anticipation of a softer, gentler stance on the part of the Fed. The market rallied even more after it got exactly that.

The Fed dropped the bias towards tightening that had been in previous policy statements. The phrase that "the extent and timing of any additional firming..." was removed and replaced with "(F)uture policy adjustments will depend on the evolution of the outlook for both inflation and economic growth."

This change in attitude can certainly be considered good news, but it has to be noted that virtually no one expected any Fed rate hike. The removal of tightening bias that no one believed in the first place hardly seems a reason for a major rally. Nevertheless, there is now a stronger expectation that the Fed is likely to lower the fed funds target by 1/4% by the end of the summer.

The economic data this week helped dispel recession fears. On Tuesday it was reported that housing starts rose 9.0% in February after a 14.3% drop in January. February starts were about equal to the average in the fourth quarter of last year. More good housing news came on Friday in the form of a 3.9% increase in February existing home sales. This followed a 2.7% increase in January. At a 6.99 million annual rate, existing home sales are well above the levels of 6.25 to 6.27 posted October through December. The housing market seems to be at least stabilizing.

The only other economic release this week was a reported drop in new claims for unemployment for the week ended March 17. Claims dropped to 316,000 from 320,000 the week before, and levels above 330,000 for a number of weeks before that. The labor market remains strong.

The earnings news was mostly good. Oracle had an outstanding report. Morgan Stanley easily beat earnings expectations. FedEx and General Mills had good reports. Motorola warned of lower than expected profits and revenue. The earnings reports and corporate news overall were of modest impact, however.

Bond yields rose slightly to 4.60% from 4.55% last week due to the good economic news. Oil prices quietly rose to $62.28 a barrel from $57.11 last week.

The market rally was very surprising in both its degree and depth. The nervousness from recent weeks has not been completely eliminated, and could arise again quickly, but was virtually absent this week.

The focus now will shift to some degree to upcoming first quarter earnings reports. Those will start in mid-April. Earnings expectations for the S&P 500 in aggregated have fallen to about 4% from 7% two months ago. Second and third quarter forecasts are close to 5%. The earnings slowdown is here.

Index	Started Week	Ended Week	Change	% Change	YTD
DJIA	12110.41	12481.01	370.60	3.1 %	0.1 %
Nasdaq	2372.66	2456.18	83.52	3.5 %	1.7 %
S&P 500	1386.95	1436.11	49.16	3.5 %	1.3 %
Russell 2000	778.77	808.05	29.28	3.8 %	2.6 %

To sum it up real quick:

Strong earnings from Oracle, a giant software company, which means businesses are spending. Fed kept rate steady, which took uncertainty out of the market for the time being. The housing number isn't as bad as it looks (existing home sales up but prices are down- buyers' market!). Stock market continues to carry a bullish sentiment- the sentiment is important! When market is bullish, they will buy on negative news! All and all, this seem to reaffirm my belief that this bull market is not yet over.