Tar Heel Business

The markets had a wonderful start this week.  Many investors are interpreting this week’s rally as an extension to last week’s rally but in light of market conditions and recent volatility levels, investors are willing to take any kind of rally for any kind of reason.

For the most part, the recent rally from 6,547 to 7,395 (a gain slightly less than 13%) since March 9^th has been broad based and spread across all sectors.   Financials, technology, consumer discretionary, and energy sectors have contributed most to the rally. Volume remains to be relatively low so it is reasonable to assume that, on a large scale, investors remain reluctant to fully enter back in the market and the rally might be unsustainable.   

Despite the recent rally, market participants were not confronted with the most inspiring news this week.  Alcoa announced that they are cutting their dividend by 82% in an effort to stabilize their financial situation by improving the company’s liquidity.  Nucor is warning investors of a first quarter loss and contributed it to deterioration in demand for steel which does little to suggest an economy that is turning around.  Nokia is cutting up to 1,700 jobs.  Furthermore, recent export/import data for January have investors shivering over continued weakness in global trade.  But maybe investors were more excited about the small rise in February building permits and housing starts apparently suggesting a housing bottom may be near the bottom.  Many investors strongly believe that the housing crisis is at the center of this financial chaos and unraveling in housing will ultimately spawn unraveling and more predictability in the rest of the economy. 

The volatility very may well continue into the week with investors awaiting a Federal Open Market Committee decision Wednesday (2:15 p.m.) and an update on the Capital division of General Electric on Thursday. Known as a bellwether for the economy, the dour performance of GE has recently scared many investors so any transparency regarding their capital division is highly anticipated.

In addition, GE is one of the few companies that still have an AAA rating.  Data on the Consumer Price Index for February will also be released on Thursday.  Aside from options expiration on Friday, investors are awaiting Ben Bernanke’s speech “The Financial Crisis and Banking Community” and what inspiration, if any, it will provide for investing under current market conditions.    

-Andrew Byrd