Into the breach with stocks

July 20, 2009

It’s hard to ignore the momentum in the U.S. stock market.

Over the last week, solid second quarter earnings, the last-minute save of the troubled lender, CIT Group Inc, by bondholders and a rosier stock outlook from Goldman Sachs analysts have conspired to make investors feel good again about stocks. The benchmark Standard & Poor’s 500-stock index has responded in kind.

Up roughly eight percent over the last week, the index is moving further away from the most recent nadir hit earlier this month amid concerns that increased joblessness would stymie an economic recovery. On Monday, it also crossed through a key threshold, one that opens up the road to 1,060 by the end of the year, a forecast that Goldman Sachs analysts laid out in a research report Monday.

The level was 950. While this may seem just like another round number, 950 represented a threshold that when breached signals a significant turning point for the better in the stock market.

And it’s about time. The index’s sashaying between 850 and 940 for months made for a frustrating dance between bulls and bears who both wanted to take the lead on the market’s direction.

Surpassing 950 hasn’t been easy. There was one serious attempt in early June, but the S&P hadn’t closed north of that threshold since early November. And even on Monday, it took several attempts until the index finally broke through in late trading to close just a hair above 950.

Earnings from the likes of Morgan Stanley, Wells Fargo
and Ford Motor Co due out this week, however, could add to the momentum, especially if they outshine expectations like corporate earnings did last week.

According to Thomson Reuters data, of the 55 companies that reported, 71 percent exceeded analyst expectations, up substantially from 61 percent seen in typical quarters since 1994. They’re also beating them by a wide margin. The surprise factor is 11.2 percent above expectations versus the 1.7 percent long-term average.

Though a piece of lackluster economic data could easily push the market south again, a decisive break above 950 signals this rally is the real thing and 1060 isn’t that much further down the road.
(Editing by Martin Langfield)


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