Insights

Market Wrap – Home Depot’s earnings and yet another Economist says the Recession is Over

The International Monetary Fund proclaimed today that the recession is over but that the recovery would be long and slow.  This view seems to be the popular forecast and some economic indicators, such as yesterdays Empire State Manufacturing Index, have started to indicate a turn around.  Home Depot (NYSE: HD) beat earnings and guided higher for 2009, but this good news was still not enough for The Depot to trade higher than last Friday.  Yesterday, when Lowe’s (NYSE: LOW) reported an earnings miss, both companies saw their stock gap down on the open and take losses on the day.  Today, Home Depot gapped back up but still was not able to regain last Fridays pre-Lowe’s report level.

Housing starts missed by 24,000 coming in at 581,000 vs. the expected 605,000 while the producer price index showed why inflation is not as big a worry as some may have you think.  The month-over-month PPI was -0.9% when analysts expected -0.3%.  Deflation was more a concern a few months ago but it would seem that enough money was thrown at this problem to avert it.  This drop in prices would seem to be a result from a slack in demand, both by the producers for input materials and by the consumers demand for the final goods.  Producers have been cutting inventories and consumers are not spending as frivolously as in the past as they are paying down debt, saving more and having their credit cards and thus purchasing power revoked.

As every bull says the market has ‘got ahead of its fundamentals’ or ‘come too far too fast’ the perception is that the market could pull back for 10% or so.  This is such a commonly cited prognosis that it could become a self-fulfilling prophecy.  Or, everyone could realize that the S&P 500 currently has a PE of 29.1 and was 20 at the market top in October of 2007.  If you buy in now you are paying almost 50% more for stocks so you had better expect earnings to accelerate quickly to justify paying so much.  Wait.  What was that we said about a long and slow recovery?

The Dow regained some of the ground lost yesterday closing up 82.60 points (+0.90%, 9217.94) and the S&P 500 added 9.94 points (+1.01%, 989.67) while the Nasdaq 100 ran up double digits rising 21.61 points (+1.38%, 1586.50).

The sectors leading the charge up the mountain today were consumer cyclicals +2%, energy up 1.68% and finance up 1.48%.

Gold is seen trading up $3.70 an ounce at $936.90 at 4:31 p.m. while oil snapped back after falling for days adding $2.44 a barrel and was trading at $69.36 at 4:21 p.m.  The dollar traded slightly lower with the Powershares Dollar ETF (NYSE: UUP) losing 0.25%.