It was a bit of a choppy week for stocks, but in the end, the bulls prevailed, lifting the averages to their fourth consecutive weekly gain and back within striking distance of the recent high. For the week, the Dow posted a small loss while the S&P 500 and NASDAQ finished in the green.
Stocks took an unusually bearish turn early in the week, with the Dow falling more than 200 points on Tuesday on renewed concern over Greece. But just like we’ve seen all year, the downturn was short-lived, with the bulls using the biggest drop of the year and a few good job reports from Wednesday and Friday as a chance to buy.
That means that for the time being, the upward momentum of 2012 is still very much intact.
What’s Next?
My big call on the market right now is that we are headed for another leg higher, probably around 5-6% into mid April. But after that, I think we’ll see some sharp downward pressure on the market into May and early summer.
Higher energy costs will be a drag on corporate earnings and the situation in the Middle East is just way too volatile for everyone to be as comfortable as they are right now. There just doesn’t seem to be much fear in the market. But a little taste of margins compression on the earnings front and more trouble in the Middle East could change the tone very quickly.
A sell off is also exactly what the politicians and central bankers want. That’s because the economy and stock market are way too strong right now for the Fed to credibly stimulate. So a little pullback in the market and some weakness in the economic data is just what the doctor ordered.
The Fed Will Be There
That means the Fed can start getting happy again by midsummer, setting the perfect foundation to juice stocks and the economy going into the election. And keep in mind, the other central banks of the world have been partying pretty hard too, so there is no way the Fed is going to watch them have fun with currency devaluations while it sits on the sidelines and watches its exports slip.
So on a larger scale, 2012 could turn out to be a great year for stocks. The correlations between January and full-year performance are strong, and we just have the best January since 1997. We could see a little volatility on a bigger sell off, which will be painful, but if stocks rally into the end of the year it could be a good chance to buy some good names at a discount.
Updates:
We didn’t see a whole lot of stand out movement from any particular sectors this week, with the averages dictating the modest tone.
The leader of the pack was VeriFone Systems, Inc. (PAY), climbing 6% to break above the $50 mark as good will from its solid quarter carries on. The short-term low is $36, so we’ve seen a nice rebound here in the rally. The all-time high is $58, so we’ve still got some work to do, but this growth oriented mid cap has been a player in the up market.
We also saw some solid movement from AmerisourceBergen (ABC), gaining 4% on the week. This stock has been a bit flat for the last few months. But earnings have been on the upswing and the valuation looks great so the long-term picture looks good.
And rounding out the pack is Checkpoint Software, Inc. (CHKP), gaining 1.5% as technology continues to be a leader. Shares are at $60, with the 52-wekk high at $62, so a new all-time high could be close at hand.
That’s all for this week. But until next time, here is an article about how higher crude is effecting corporate and retail consumption. Enjoy!
Your Investment Partner,
Mike
