1.29.10

1.29.10

            The Standard & Poor's 500 Index fell 3.7 percent in January and is off nearly 7 percent from its high this month. Investors are worried that Greece's debt troubles may herald a wave of sovereign defaults in the euro zone that could derail an economic recovery. There are a lot of concerns going on as far as the sovereign debt is concerned in a number of nations, specifically in the euro zone.  

            A heavy week for economic data will culminate in Friday's non-farm payrolls report. Analysts believe the economy added 5,000 jobs in January. Another negative surprise after the previous month's unexpected surge in job losses could roil the markets.

            Around 500 U.S. companies have reported quarterly earnings so far and of those, 73 percent have beaten earnings estimates, exceeding the 68 percent that beat in the last two quarters, but that positive earnings picture has not translated into gains for the stock market this time around. Data shows the average stock of a company whose earnings beat estimates gained only 0.8 percent, compared with a 2.9 percent drop in those that missed. The companies beating aren't being rewarded by nearly as much as the companies that miss are being punished.

            If this January is anything to go by -- and the Stock Trader's Almanac shows only six major occasions in the last 60 years when January's performance has not been an indicator for the rest of the year. That figures out to a 90% chance of the market being down for the year in 2010.

            The U.S. economy grew at its fastest pace in more than six years in the fourth quarter of 2009, expanding at an annual pace of 5.7 percent -- much more than most economists had expected.  How much of this was due to companies having to order goods due to their need to replace inventory that had been deferred. We feel that this is not a sign of a self-sustaining recovery.

            For the month of January, the blue-chip Dow average dropped 3.5 percent,  close to the S&P 500's 3.7 percent decline -- and the Nasdaq lost 5.4 percent. Most of the averages are sitting on or close to their 20week moving averages.

            At the moment, the market is finding a downward slope is easier to navigate than an upward climb. We are staying 100 % in CASH for the moment.

Till next time

The MTA Staff