2010 Stock Market Analysis

As we speed through the last few trading days of 2009, it’s time for all of us to turn our attention to what is sure to be an interesting and eventful 2010.

So, let’s take a look at what investors should be keeping in mind – and on their radars – as we enter a bright new year and evaluate the next phase of the economic recovery.

The unemployment rate remains the ultimate barometer of how well the recovery is doing. The initial $787 billion stimulus package was supposed to create or save millions of jobs, but so far success can only be measured in terms of “what could have been”. It’s a safe bet that the stock market can’t get on a sustainable uptrend until new jobs are being created, and the unemployment rate begins to tick down.

As long as unemployment is rising, bears will have strong ammo to retain their stance in market discussions. Investors should remain cautious of companies and industries that rely on consumer spending until we see concrete evidence of higher employment.

Home tax credit extended and the mortgage industry is another key metric to follow in 2010. The $8,000 new buyer credit now runs through April 2010, and an additional credit offers $6,500 to homeowners that have lived in their home for at least five years and are looking to relocate their primary residence. This should help to improve the home market and fringe retailers like Home Depot and Lowe’s, and other home appliance and home improvement stocks.

Housing led us into this mess, and at some point it will need to help lead us out. Housing data follows employment data as the most important economic indicators heading into 2010.

The banking pulse will continue to dominate headlines. We might see the vast majority of TARP funds repaid to the U.S. Government by the end of 2010. On December 2, Bank of America got approval from the Treasury Department to repay its $45 billion in remaining TARP loans. Bank of America subsequently sold nearly $20 billion in stock to raise cash, and its move could be followed by similar actions at Citigroup and Wells Fargo.

The combination of a falling U.S. dollar and higher commodity prices has been the most consistently profitable investing theme of 2009. Most signs point to the dollar remaining low in 2010, but if we see any signs of inflation in economic indicators like the CPI and PPI, expect the dollar to start recovering as short-term interest rates will head higher.

Investors should have some stock exposure to commodities as well as stocks with a high percentage of exports, but don’t bet the farm on them. This area has had an extremely good 2009 and could be due for a drop, or at least a slowdown.

There’s cash in them thar hills! We continue to see investors holding cash, trillions in fact. This means that as more people have faith that we are indeed recovering, there is a lot of kegged gunpowder that can fire into stock markets next year.

Dubai Credit Rattles the Stock Markets

The world stock markets fell on Thursday as Dubai attempted to delay debt payments for six months.   The US stock market was closed for the Thanksgiving holiday, but the S&P futures are down considerably.  Commodities, especially oil prices, are weakening while the U.S. Dollar and Treasury bonds are starting to rise.

Emerging markets are suffering significant losses and money appears to be moving into consumer staples.  Investors remain very cautious as we wait to learn more about Dubai’s credit situation.   Keep in mind that money managers are eager to lock in profits for the 2009, so an event such as this may be a catalyst for year end selling.  Couple this with the fact that the US dollar and Treasuries are at historic lows, and we may see some selling pressure ahead.

Stocks start week off with a bang

Securities investors kept the stock market’s upward momentum going Monday, sending shares sharply higher after retail sales rebounded more than expected in October and the dollar extended its slide.

Major stock indexes rose more than 1 percent to new 13-month highs, including the Dow Jones industrial average, which jumped 136 points. The Standard & Poor’s 500 index closed above the 1,100 mark for the first time in more than a year.

The weaker dollar lifted gold to a new record and pumped up prices of other commodities, including oil. That, in turn, helped shares of energy and materials companies.

Stocks got another boost after Federal Reserve Chairman Ben Bernanke reaffirmed in a midday speech that the central bank would hold interest rates at record-low levels for an “extended period,” and that he didn’t see signs that the money being pumped into the economy by the government was creating speculative bubbles. Bond prices rose after Bernanke said inflation appeared contained.

Some analysts have cautioned that the surge in stocks, which has been hastened by the falling dollar, might not be justified by the still-struggling economy. In fact, they say some investors might misread the big advance in stocks as a sign that the economy is stronger than it actually is.

The market’s own dynamics fed some of the day’s gains.

The S&P is breaking through the 1,100 mark, which is psychologically significant, and the market is seeing a little pop from this. Stocks began rising from the start after the Commerce Department said retail sales rose 1.4 percent in October, nearly double the increase forecast by economists polled by Thomson Reuters. It was a sharp rebound following the 2.3 percent drop in September. Excluding the gain from autos, however, sales rose just 0.2 percent, half of what economists predicted.

The broader S&P 500 index rose 15.82, or 1.5 percent, to 1,109.30. It has hovered around the 1,100 mark for a month but hadn’t closed above it since October last year. The index first finished above 1,100 more than a decade ago, in March 1998.

Sluggish Economy: Economists guardedly optimistic about timeline

The beginning of an economic recovery appears to be just a few months away but unemployment is predicted to rise past 10% into next year by most surveyed economists. The jobless rate will peak at 10.2%, according to the median estimate of the 49 economists surveyed July 16-22 per USAToday. That’s up nearly a half-percentage point from the previous survey in April. The nation’s unemployment rate hit 9.5% in June, a 26-year high.

“About half of those surveyed said unemployment will peak in the first half of next year, while 16% said jobless rolls will swell into the latter part of 2010. The Federal Reserve forecasts unemployment peaking late this year at 9.8% to 10.1%.

The economy is expected to grow again during the second half of this year, and slightly more robustly than the April survey projected. Yet, the median growth-rate estimate of 2% for the fourth quarter is weak by historical standards.”

“I think (the recovery) is going to be anemic,” says Allen Sinai, chief economist at Decision Economics. He cites debt-laden consumers as the main obstacle.

“Households have to save a lot to fix their balance sheets before they can spend more,” he adds. “I don’t think consumers have the wherewithal to buy a lot of cars and a lot of houses.”

Another factor slowing the turnaround is still-tight credit markets that will limit business expansion, UBS chief economist Maury Harris says.

Overall, 63% of the economists say the recovery will be slow and gradual. Those surveyed expect businesses to continue to cut spending until early next year. As a result, Sinai says, unemployment will continue to rise.

There are some bright spots.

Two-thirds of economists say existing-home sales have hit bottom. Consumer spending has stabilized. And CEO confidence shot up in the second quarter, the Conference Board said recently. Such signals are prompting 37% of economists to predict a moderate or fast recovery.

Bill Cheney, chief economist at MFC Global Investment, says the housing and automobile markets plunged so sharply that “both have the potential to generate some quite large percentage increases.” Consumers could be moved to open their wallets because of rising values on the stock market, he says.

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubushi, is also fairly bullish, expecting unemployment to top out at 9.7% this year.

“I think the key to a turnaround is that job losses stop quicker than people are expecting,” he says.

Consumer Index and the Stock Market

U.S Stock Market Analysis

The daily updated fundamental and technical analysis of U.S stock market is highly in demand today owing to the uncertainty prevailing among the investors and shareholding companies worldwide.

The economic meltdown of US economy is now in a hopeful recovery though most customers are still holding back the shares. As per the latest U.S stock market analysis of July 7 this year, the futures for Dow Jones DJc1 has dropped by 161 points (ie, approximately 0.9 %). Similar is the condition of European shares that were also found to have dropped to 1.6 % this week that has been pulled by the dropping shares of all commodity related companies. However, when considering Asia, the earnings of the world’s leading developer of electronic chips and TV’s – the Samsung electronics of South Korea is anticipated to rise above market estimates, thereby uplifting the shares to more than 4 % this week.

As per the recent analysis, even though the economic outlook of the US economy is in the great path of recovery, yet the complete resolution of county’s financial stability is still not going to work by this year. With the dipping of store sales from 1.6 percent the previous week to 0.1 percent the present week, consumers are not found to be spending as much as expected to recover the economical pressure. The Dow Jones continues to pullback in the market by making yet more drops today with short term support level of only 8000 points and the intermediate support being 7500 points. Thus, as per the technical analysis so far found, the trading volume remains to be below average with the wavering rise and drop of bearish momentum with the lowering and dropping of the Dow. Studies reveal a depressing daily high as the Dow continues in a short term neutral trend. Similar to Dow Jones, the futures of S & P 500 SPc1 and Nasdaq 100 NDc1 has also fallen down by 0.9 % as per this week’s latest stock market analysis.

In addition, the quick recovery of the US economy is still on mounting doubts with the tumbling of oil prices with around $3 per barrel. It is anticipated that the oil prices will rise as the supply drops beyond demand within a year or two. It is also hoped that the OPEC cuts could worsen the gap between the demand and supply of oil and the oil prices is likely to be driven even higher. You can find out even more details on the U.S stock market analysis of 2009 from reliable sources in the Internet for free. Make thorough research before investing your money on the stocks in this uncertain market of today.

Nervous Consumers Stall Recovery

The fear on Wall Street is that nervous consumers (non-believers) are going to short-circuit the economic recovery.

Stocks fell sharply this past Friday, taking the major indexes (NYSE & NASDAQ) down about 1 percent, after investors were disappointed by reports that the Reuters/University of Michigan index of consumer sentiment fell significantly short of expectations for the first part of August. That’s a sign consumers may well keep cutting back their spending as they worry about losing their jobs and furthering economic woes. Consumer spending is crucial for the economy to emerge from recession as it accounts for two-thirds of all U.S. economic activity.

The discouraging reading came a day after the Commerce Department reported a rather unexpected down trotting in retail sales, which was not suppose to happen this time of year as August has typically been a big month for retail. Investors were able to shake that off, but Friday’s consumer sentiment number had them bailing out of stocks, jeopardizing a summer rally that had lifted the Standard & Poor’s 500 index more than 15 percent in about a month.

Investors also sold off oil and other commodities and moved their money into the relative safety of the dollar and government bonds. Treasury prices jumped, sending their yields lower, while the dollar rose against other major currencies.

After rallying for months on expectations of an economic recovery, investors are worried that they have been too optimistic, given consumers’ continuing reluctance to spend. Analysts are predicting that the market may be choppy for several more months and this recession will continue to drage on with consumer confidence not as high as expected.

After the consumer forecasts were released the Dow Jones fell slighttly (0.8 percent). The S&P 500 index fell 8.64, or 0.9 percent, to 1,004.09, while the Nasdaq composite index fell 23.83, or 1.2 percent, to 1,985.52.

The drop erased much of the market’s advance of the last two days, and gave the big indexes their first losing week after four weeks of gains. The Dow was down 0.5 percent for the week, while the S&P 500 index fell 0.6 percent and the Nasdaq was off 0.7 percent.

In other trading, the Russell 2000 index of smaller companies fell 11.29, (or approximately 2%).

Bond prices rose sharply. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.57 percent from 3.62 percent late Thursday. The drop in the 10-year yield is good news for consumers because it is closely tied to interest rates on mortgages and other loans.

US Stock Market Slow to Rebound

Even though there is the risk of unemployment, payment cut-offs and decline in the money value which is shaking the financial system currently, there is still a ray of optimism for the Federal Reserve that US economy can still recover in the later 2009. According to latest news sources federal reserves says that they are less concerned about the current situation as the pace of economic contraction is slowing down and deflation no longer remains as a serious danger. There is improvement and stabilization in the aspects like fall in housing market, household spending and financial confusion which had affected the market condition and financial stability of the US economy. A certain degree of progress is visible in the financial market recently as the pace of economic slump is getting slow down. Since the financial stress is still continuing it may continue week for some time.

It also seems that the rigid credit situations, crash in asset price and increased aversion risk can continue heavily and can put forth burden for the US economy. According to the latest news credit crisis has led to the closure of four banks in Georgia, Minnesota and California by the regulators. The closure has resulted in this year’s national tally to become 44. FDIC has stated that it will soon mail a check to insured depositors of Community Bank of west Georgia. Recently, 19 banks in the country were subjected to stress test and it is found that 10 out of 19 need to raise the capital for combating with the current circumstances. As banking giants like Bank of America, Wells Fargo, Citigroup etc were also included in the test they can help in returning the government funds by raising the capital.

The country is slowly restoring the financial stability under the administration of Barack Obama. The government is hoping that the economy will remain stable and there will be improvement in the immense economic growth contraction of 6.1% seen early this year. The economic situation can improve a lot under this government in the near future. Even though there is slight improvement in job losses in May which was about 345000 compared to January this year which was about 741,000, there is possibility for rise in unemployment in the coming months. It is expected that rise in unemployment will be by 9.6%in the coming months. Though there is a gradual economic progress, a certain degree of uncertainty exists because of the tight credit conditions prevailing today.

US Mortgage Industry

It is no more news splashing everywhere that the US economy is going through a recessionary period; the sub-prime crisis washed away everything like a tornado. The rallies in the mortgage industry were so swift and quick that the reversal in trends made everything fall apart like the house of cards.

It all started like this – the housing industry was on a boom, the interest rates for mortgages were low and attractive, so more and more people applied for mortgage loans. Earlier the banks had stringent rules for lending. They assessed the customer’s credit worthiness and ensured that the loans would not go bad. There were hardly any delinquencies and defaults. So when the demand for mortgage loans increased the banks took the recourse to the secondary market. They had to off-shed the assets lying idle on their balance sheets, so they packed these assets and made them into bonds and sold it to investors to raise funds – the activity, more popularly known as ‘securitization.’ The banks started lending more and more. They now were negligent of the credit worthiness of the borrower and started lending randomly as they had the recourse to the secondary market to off-load the assets. They were not worried about the credit risks that were attached to these loans. This meant borrowers with high credit risk and bad credit history, who had no access to the loans could very easily avail such loans. This was supported by a favorable and flourishing refinancing market. Household debt in the past 15 years had risen from 65% to 135% post tax income and savings had fallen from 10% to practically nothing because for every practical purpose their was a loan available. This was like filling the balloon with too much of air and it had to burst.

After the bubble busted the scenario was exactly the opposite. There was no money, no loan, no job, house prices falling and no one is talking about the mortgage loans. The unemployment rates rose from 7.2 to 7.6%, coupled with fall in consumer spending, credit availability in the market was bad and the inventory of houses was on an all time. It is what I term ‘the ripple effect’ in an economy.

The new government introduced a lot of stimulus packages to unlock this credit crunch. Several aggressive measures are being taken by the government to off-shed the load of toxic of the burdensome assets of the banks’ balance sheets. Despite the assistance from the government things have not as yet stabilized.

A barometer for interest rates in mortgage loans and other loans happens to be the bond yields. So when there is an increase in the bond yields it was followed by a rise in the rate of mortgage loans. The government has raised the yields on the 10-year Treasury rates to 3.99%, rates of the 30 year home loans jumped to a 5.57%. The interest rates for 30 year and 15 year fixed rate mortgages have increased from 5.25% to 5.57% and from 4.8% to 5.1% respectively in June, 2009. So with the increase in the mortgage interest rates the refinancing activity has slowed down (a fall about 62% since April, 2009), will this slowdown the recovery pace or is it an indication that the investors are ready to enter the market again, we will have to wait and watch.

GM Bankruptcy Effect on the Stock Market

When General Motors Corporation (GM) formally filed for bankruptcy on June 1st, 2009 the effect on the NYSE, S&P500, and the Nasdaq was minimal because the markets had anticipated this event earlier. In filing for Chapter 11 bankruptcy, the Obama Administration says that GM will emerge as a viable automobile company that hopes to pay back its bailout loans. GM will need to do more than drop Pontiac from the brand as  fact remains that GM’s debt exceeds its assets by nearly $90 billion, resulting in unprecedented funding by the feds to become a viable enterprise. GM’s stock was removed from the market on June 2nd, 2009 after filing for bankruptcy.

Lawsuits are presently being filed by shareholders per latest GM News because their investment returns are threatened by the bankruptcy filing. Indiana has recently filed suit in the 2nd U.S. Circuit Appellate Court, claiming that public investment funds will lose the bulk of their value because of the deals signed, which favor unions and partners over the holders of bonds. These bonds were originally sold to help finance the ongoing operations of the automakers. The stock market news will certainly react to these developments as they slow down progress of the bankruptcy proceedings.

Shareholders of GM will find little value for their investment after the company emerges from bankruptcy. Relief to stock and bondholders is a very minimal priority in Chapter 11 bankruptcy court. Uncertainty surrounds GM after bankruptcy and doubts remain as to whether or not the new company will return to the stock market. Every American taxpayer now owns a piece of the 60% government interest in the new GM, after billions of additional TARP dollars have been used to prop up the automaker. TARP funds were initially established to bailout banks, not automakers, which has led to some controversy. Any illegal use of TARP funds will be contested in the courts and possibly affect the progress of the GM bankruptcy filing. View GM’s current stock charts using Stocknod Research.

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