January 14, 2011
This is a huge weekend for football fans. It’s the NFL playoffs, with the ultimate winners heading toDallasfor the Super Bowl. There are plenty of story lines with the underdog New York Jets, the domineering Patriots fromNew Englandand hard-hitting Green Bay Packers.
In this spirit of competition, the Markets are also thriving. CorporateAmericahas begun reporting its 2010 results and so far there is nothing but good news: Earnings are coming in above estimates. Next step is dividends being raised to directly reward investors.
So where does this lead your stocks, you ask. The financial press is having a field day speculating on the true meaning of the favorable trading momentum during the first week of January. 75% of the time that this occurs, stocks outperform normal patterns. In fact, since 1955, stocks gained an average of 18.4% for the entire year with not one down year. We are rooting for the camp predicting: “1500 on the 500”, meaning the S&P 500 could reach 1500 by the end of this new year. Hallelujah. Bring it on! Our own prognostication is a tad lower than 1500 but all worthwhile estimates are only as good as how often you re-visit them so count on us to keep you current and remain vigilant.
Bonds are also trading higher because Congress will soon vote to raise the federal debt limit soon so the government won’t have to shut down. The bond market is buying into Congressional promises that any vote to increase the debt ceiling must be paired with a commitment to lower federal costs over the long term. That’s all about the BUDGET deficit, but the effect of years of unbalanced budgets is the federal DEBT which rose to a record $13.97tn in December. The current statutory debt limit is $14.29tn hence a need to raise the ceiling.
After the football playoffs – but before the Super Bowl on Feb 6th – we head into the State of the Union address on Tuesday January 25th. This could be a notable speech as financial markets will be listening for indications that our nation’s debt and our budget deficits will both be dealt with in a manner that does not stifle the economic recovery we now enjoy. Enjoy the games this weekend.
By: Jude Bedell