Market Update

Tuesday, November 30 2010

The market has struggled to shake concerns this year regarding the contagion impact of debt problems in the peripheral European economies.  Last week problems in Ireland appeared to trigger a round of risk taking and some war mongering in Korea added to the uncertainty. With Ireland working on a bailout agreement with the EU and IMF, the talk has turned to Portugal and Spain. Bond yields for all of these countries have continued to increase. We continue to see this as a sideshow to the main event that will impact the Australian market – the impact of QE on the US economy and the ability of China to continue to grow.

In the end, the Dow and S&P 500 ended the week modestly lower while mid- and small-cap shares outperformed, helping the Nasdaq Composite and Russell 2000 rise modestly. That has been the story throughout the year, with the Dow and S&P gaining 6.4 and 6.7% year to date, respectively, while the Nasdaq is up 11.7% and the Russell has gained 17.2%. This probably highlights the leverage the smaller cap stocks have to a recovery.  I suspect they are a reflection of the economic recovery working its way through the US economy.

The reason the major averages did not close lower last week was a batch of better-than-expected economic data on Wednesday. Initial Jobless Claims fell to 407,000 for the week ended November 20 (consensus 442,000) while the final reading for November Michigan Sentiment improved to 71.6 (consensus 69.3).

 

 

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