Jason Kelly’s Week In Review

This week, the market moved higher on indications that the economy remains strong.

For the week:

Dow +1.5%

Nasdaq +1.9%

Nasdaq 100 +1.9%

S&P 500 +1.1%

S&P Midcap 400 +1.3%

S&P Smallcap 600 +1.3%

September ended up:

Dow +2.6%

Nasdaq +3.4%

Nasdaq 100 +4.7%

S&P 500 +2.5%

S&P Midcap 400 +0.5%

S&P Smallcap 600 +0.8%

On Monday, the Dow fluttered above its former record high before settling slightly. There was a hush of nervousness in the air as crash-happy October opened following such a surprisingly strong September. Would the piper need to be paid this month? For this week at least, the answer was no.

Falling oil prices were a big part of the strong stock market in September, yet their continued plunge on Monday didn't offset the jitters. Venezuela and Nigeria decided to pare production, but traders thought that would have a negligible impact on the supply glut. Crude oil futures dropped 3% to $61.

Then Wal-Mart (WMT) guided below the midpoint of its September same-store sales projections. That was another reason to hold back, it seemed, because it could indicate a hesitant consumer as we head into the holiday season.

The Dow slipped 0.1% and the Nasdaq slipped 0.9%.

Tuesday saw the Dow reach a new all-time high on falling commodity prices again. Money moved from oil and gold stocks to financial and cyclical stocks.

Merrill Lynch downgraded the energy sector to underweight as oil fell another 3.8% to its lowest price in seven months. Falling oil prices bode well for consumer spending, one of the economy's pillars and a factor that's especially important ahead of the holidays. Less money spent at the gas pump and in keeping the house warm means more money for presents under the tree.

Halliburton (HAL), the oil services bellwether, hit a 52-week low and so did Newmont Mining (NEM), a gold major.

The Dow gained 0.5% and the Nasdaq gained 0.3%.

On Wednesday, Federal Reserve Chairman Bernanke gave an optimistic view of the economy and sent stocks soaring. It looks as if interest rates are not going any higher.

Prior to that, the Institute of Supply Management reported that the services index dropped to 52.9 in September, a level not seen since April 2003. Economic growth is slowing, and that takes some of the inflation pressure off, an idea confirmed in the chairman's speech.

From Econoday:

He specifically pointed to a 'substantial correction' in the housing market as the key force behind a slowing in second half GDP. Bernanke indicated he believes the drop in housing will cut about a percentage point off second half growth and moderate the expansion in 2007. The Fed chairman also stated that he remains concerned about inflation but still expects inflation to come down. He sees the non-housing portion of the economy to remain healthy, noting that even in construction that the nonresidential component is quite strong. Essentially, Bernanke appears to be saying that the possibility of additional interest rate increases this cycle by the Fed currently is remote.

Oddly, among all this optimism, oil prices rose. An explosion at a Texas refinery coupled with violence in Nigeria sent oil up 1.3% to $59.50 per barrel. That wasn't enough to stop the party, though.

The Dow rose 1.1% and the Nasdaq rose 2.1%.

Thursday saw the Dow close at yet another record high. Not a bad time to be in our permanent Double The Dow portfolio, eh? This is why. The Dow will never cease to be a solid long-term performer because the editors of the Wall Street Journal make sure that the compact list of 30 companies always contains the best in business. That, coupled with the relative undervaluation of large caps is pushing the Dow along at a good clip these days. Our doubling of that good clip is profitable, indeed.

Starbucks (SBUX) reported a 6% rise in September sales and said it plans to double its size by 2010. The stock rose 7.4%. Then Target (TGT) offset Wal-Mart's (WMT) below-midpoint guidance earlier in the week with September comps up 6.7%. It said that Q3 will be better than expected.

Not to be seen as spreading good news for too long, the Fed sent out Philadelphia President Charles Plosser to talk tough on interest rates. He doesn't vote, though, so his words held little sway on the street. They did re-phrase Fed Governor Kohn's Wednesday warning that investors shouldn't dismiss the Fed's inflation concerns, although that point was hard to swallow following Boss Bernanke's point that rates are done rising. It's hard to pin down that august council of economists, so investors, unsure what to make of this indicator grab-bag, just moved on from Mr. Plosser's grousing.

Oil rose to almost $61 on incorrect reports that OPEC was planning to cut production for the first time in two years. It was enough to send Grant Prideco up 2.4%, however.

The Dow eked out a 0.1% gain and the Nasdaq rose 0.7%.

Friday saw a bit of consolidation. The september employment report left the labor market looking fine and the odds of another interest rate hike low.

The only real news was that Tracinda Corp. will not try to buy another 12 million shares of General Motors (GM) now that the car maker has dropped is cooperation talks with Nissan and Renault. Evidently, Tracinda head Kirk Kirkorian is not pleased with the direction that GM is heading. One of his people, Jerome York, resigned from GM's board.

The Dow lost 0.1% and the Nasdaq lost 0.3%.

Jason Kelly’s column appears every Saturday. He also writes The Kelly Letter every week with specific buy and sell guidance. For more information, please visit http://www.jasonkelly.com/letter.html.