The overall feeling on the Street is that we are beginning to see the first signs that the economy is in the process of forming a bottom as the rate of descent is slowing, according to economist Robert Pavlik. A renewed sense of optimism has bolstered investor confidence triggering a sector rotation trade. Funds are flowing out of the defensive sectors such as health care and consumer staples and into the early cyclical sectors such as industrials, materials, technology, financials and energy.
When you begin to look closely at some of the events that have occurred over the course of the past several weeks you begin to get a sense that the market's fundamentals are beginning to change in a more positive direction.
In early March, several prominent bank CEOs were quoted as saying that despite the problems facing their firms they were actually profitable in the first two months of 2009.
The SEC is finally seriously considering reinstating the Uptick Rule. While bringing back the Uptick rule would not prevent a major sell-off, we believe it could slow the rate of descent of a major sell-off thus allowing long-term investors the opportunity and confidence to begin buying stocks as that would face less brutal selling tactics initiated on the part of opportunistic traders.
FASB's decisions to relax the accounting rules on assets that cannot be priced due to market conditions, should help improve the earnings for the banks and brokers especially since the rule allows for backdating into the first quarter.
This rally has not only been fueled by short-covering, the rally has pulled cash off the sidelines as illustrated by the increase in buying pressure. Since the beginning of the year we have experienced eight 90 percent downside volume days, yet since the market bottomed on March 5, we have seen five 90 percent upside volume days.
Over that past four weeks we have received many surprisingly positive earnings reports from companies representing a cross section of the economy. A possible conclusion is that the analyst's estimates are now low enough to allow for a potentially better than expected first quarter earnings season. Positive earnings surprises include: J Crew, Men's Warehouse, Quicksilver, Darden Restaurants, Nike, Oracle, Blockbuster, Barnes & Noble, 3M, Carnival, Best Buy and Research in Motion.
Over the past several weeks there have been a number of successful corporate bond offerings indicating willingness on the part of investors to increase their risk exposure and foregoing the ultra-safe Treasury market.
Economic reports indicate that the decline in the economy is slowing or perhaps beginning to bottom, including manufacturing, housing and spending.
A noticeable improvement in commodity prices has been occurring since the beginning of the year. A common thread among these raw materials is their usage in the manufacturing of other goods, thus if demand is rising for raw materials it can be concluded that demand is also expected to rise for the finished goods.
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