The DOW and S&P rose about 2.3% yesterday as the strong rally continued. Short sellers have been covering stocks and many tidbits of better economic news have led investors to become a little more complacent about the future. We are encouraged by recent signs in the retail sector, industrial production, and housing but the economy isn't ready to rise yet.
Earnings season is coming as we approach April. Yesterday both Best Buy and Dr. Pepper reported strong profits and the markets liked the news. However, Circuit City is out of business and we would expect Best Buy to pick up huge market share. The grimmer earnings news will be coming and the resiliency of stocks will surely be tested. As 2009 progresses, we still remain concerned with the effects of a looming commercial property disaster. Defaults on buildings will not only hurt real estate but banks, insurance companies, and REITs could all feel the pain. The defaults on credit cards and other consumer loans should also be rising throughout the year and let's not forget the trouble in the auto sector.
The market could rally until the end of the month but there are many concerns ahead and we will remain cautious as we ride the trend. The current run up in stocks was catapulted by the Geithner public-private partnership. The success of this plan is clearly not a given and if it fails, watch out below.
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