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| Leeb's Market Forecast | |
| April 3, 2008 | |
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| Dear Investor, Leeb ETF Trader Update Market Recap: The first quarter of 2008 was a strange quarter for most market participants: The S&P 500 was down 9.92 percent (on a price basis) with the eye of the storm being centered in financials, and, more narrowly, the broker-dealers. But there also were encouraging numbers of positive developments in the S&P 500 hiding behind those negative returns.
Let's start with the truckers. In a recession, the theory goes, transportation stocks are weak. On the contrast, the S&P Trucking index was up 29.6 percent. The naysayers would say that the S&P Trucking index has only one stock -- Ryder -- but this is a common issue with narrow S&P industry groups. Luckily for us, Ryder is also a member of the Dow Jones Transportation Average. And that broader index also speaks volumes.
Charles Dow, the founder of the Wall Street Journal, has a very intricate way of analyzing the market; the main point of his analysis was that the Dow Jones Transportation Average and the Dow Jones Industrial Average must confirm each other. In a weak economy both the Transports and the Industrials must be weak, and vice versa, in a strong economy, both averages should be strong, i.e. confirm each other by making new highs.
The strong transportation stocks translate into strength for the Dow Jones Transportation Average and today that does not point towards a very weak economy. Sure, the Transportation Average also has some weak components, but the trucking stocks and the railroads in the Dow Transports have done very well.
Also, Federal Express (FDX) -- another venerable member of the Dow Transports -- is telling a very interesting story. Because FDX is a large private mail and logistics company, its business is highly correlated to overall economic activity. We have seen studies on how FDX' operational performance shows a 70 percent correlation with US GDP growth. Such correlation will surely change as FDX expands in emerging markets, but for the time being it still is a major bellwether for the U.S. economy. And the stock was up 3.9 percent in the first quarter (it is up more in the first two days of the second quarter). UPS -- FDX 's largest competitor -- was also up by 3.3 percent in the first quarter, and it is acting very well in the second quarter as well.
Last year, both stocks sharply weakened in the summer and bottomed out in January 2008. It seems to us that if the economy was sharply weakening, so should Federal Express and UPS.
Last week we mentioned that the financials, and more narrowly, the brokers, were key to the market's success (as they are the largest economic sector in the S&P 500). Lehman Brothers fell sharply last week, but rebounded strongly on Tuesday and Wednesday as the company raised $4 billion with the sale of convertible preferred stock that was oversubscribed. From the worst-performing major economic group in the S&P 500, financials became the best performing group when the new quarter started. Clearly, large institutional investors want to make the bet that the worst is over.
This week important market movers are unemployment claims on Thursday, the non-farm payrolls on Friday and Bernanke (who speaks both on Wednesday and Thursday). We have an office joke that almost every time Bernanke speaks lately, the market sells off. It has not worked that way on Wednesday, but the Fed Chairman is not known for sugarcoating the situation, which is in sharp contrast with his predecessor's patented "Greenspeak".
We sure hope that both unemployment claims and non-farm payrolls will come out reasonably well (as did today's ADP numbers), as we hope that the worst is over. A change from that violent trading range will be welcome. Until Next Time,
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Leeb's ETF Trader offers investors a sophisticated short-term trading strategy that is easy to follow, requires only a few minutes a week, and features on-going support from a team of professional analysts. Are You Ready For The Next Level Of Active Investing? ------------------------------------- Leeb Aggressive Trader Update Market Recap: Forget Major League Baseball's opening day, the real story this week is the stock market's quarterly opening. After closing on the worst quarterly performance since 2002, stocks staged an impressive rally yesterday, with the S&P 500 gaining 3.6 percent. The gains were fairly broad based, with advancing issues outpacing decliners by nearly a 10-to-1 margin. Likewise, volume was overwhelmingly to the upside.
Taken in isolation it's hard to read much into a big one-day rally like yesterday's move. However, this it the third time in the last three weeks that stocks staged such lopsided one-day rallies. When three such rallies occur in quick succession the market is telling you the move is more than just a head fake on the way to further new lows. Instead, it is typically a launching point for a decent upside rally.
It's also worth noting that the market, which is always looking ahead, is starting to shrug off bad news. For instance, the rally occurred yesterday despite news that Swiss investment bank UBS was taking another write-down, to the tune of $19 billion. A month or two ago such news would likely have prompted a sharp market selloff. Other troubled financials, such as Merrill Lynch and Lehman Brothers, have rallied after going to the capital markets hat in hand.
So were do we go from here? The 1400 level on the S&P 500 could prove to be a tough barrier to surpass in the short run. But most likely we'll crack that barrier at some point and stocks will continue to run for another 5 percent or so before hitting a serious wall. Of course the rally to that point won't occur in straight-line fashion.
No doubt UBS won't be the last financial to print red ink; other companies in the sector are likely to report more losses that could cause setbacks for stocks in general. But the Federal Reserve appears to have gotten a grip on the credit crunch by opening the discount window to non-bank financial institutions and taking agency and other triple-A rated paper as collateral, and its aggressive rate cutting.
Those moves, combined with increasing signs that the economy is surpassing expectations mean the upside potential in the market outweighs the downside risk. We're therefore likely to put on more long positions than shorts in the coming weeks. Until Next Time,
Your Aggressive Trader Team If you cannot view this mailing click here. This email was sent to LEMMETRY@GMAIL.COM. You are receiving this email because you have requested a free subscription to Dr. Stephen Leeb's Market Forecast. Click here to be removed from this mailing list. Click here to be removed from all of our promotional offers. TCI Enterprises, LLC 500 5th Ave., 57th Floor New York, NY 10110 Disclaimer TCI Enterprises LLC, The Complete Investor, Emerging Investments, Leeb ETF Trader, Leeb IPO Insight, Leeb's Aggressive Trader and their affiliated companies and publications ("TCI" or "Letters" or "Publications") are not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Letters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in publications for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in publications is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI. TCI shall have no liability for any e-newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.  |
