Wednesday, April 30, 2008

April 2008 Rewind - Earnings Dominance

This April brought shelter from the recent financial storms with the major U.S. equity indices posting their first across-the-board gains since last October. Once again, Large-Cap technology led the charge with the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posting monthly changes of +4.76%, +4.54% and +7.62%, respectively.

After monster gains recorded on the first day of the month, daily movement was almost completely dictated by the earnings calendar. On balance, this along with a smattering of merger and acquisition news and significantly reduced volatility supported a positive mood on the street. This was in spite of several highly negative economic readings and record breaking commodities prices, which were largely overlooked.

On the final day, the Federal Reserve cut key lending rates by another 25 basis points, and appeared to indicate it would be pausing at the 2.0% level for the time being. Meanwhile, Style-Box performance was firmly in the Growth camp all along the capitalization spectrum.

Now that the five-month string of losses has been broken and the markets have shown signs of stabilization, traders will begin to look for indications of renewed economic strength in support of the second-half comeback premise. As of now, there has been scant evidence for it, but then again and unlike the market itself, most economic indicators are backward looking.

The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Sentiment: Stabilized/ Positive
Volatility: Elevated (VIX 19-23)
Direction: Positive

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