Market Outlook | June 29, 2009

S&P 500 918.90 -.25%
DJIA 8,438.39 -1.19%
NASDAQ 1,838.22 +.59%
Russell 2000 513.22 +.10%
MSCI Emerging Markets 32.29 +1.25%

At an early glance, not many significant changes in market performance, Federal Reserve tone and investor sentiment. Nonetheless, June provided early clues on a much needed breather to an uptrend that began in Mid March. Interestingly, Crude and Treasury Yields peaked on June 11th . Clearly, both indicators serve as a general barometer for interest rates and commodities. In other words, recent behavior makes a strong case for a sentiment shift away from risky assets. At this stage, speculators are reexamining the substance behind previous optimism.

Perhaps, this sideway behavior is a result of investors shortening their holding period. Similarly, the Federal Reserve did not provide major guidance. At the same time, pending regulatory changes have not fully materialized. A difficult week to search for major evidence of trend changes given quarter-end in a holiday shortened week. As the halfway point of 2009, corporate earnings can disappoint especially in credit related themes. From a technical view, breadth indicators suggest further pullbacks in broad markets. Importantly, the surprise element in earnings can shape the rest of the second quarter.
Looking ahead:

Innovation based themes offer attractive entry points for longer-term investments both in private and public markets. On a relative basis, commodity groups reached elevated levels and Financials remain weak. For the most part that leaves Technology and Healthcare attractive areas for stock specific selection. Groups in Technology with growth potential include broadband, media and telecommunication.

“The recent profit recession has pushed real profits below its long-term time trend. Remarkably though, domestic non-financial profits have held up better than expected. The resilience of profits in the past year does not reflect stronger-than-expected sales.” (BCA Research - June 24, 2009)