May 30th, 2012 9:21 AM by Mel Samick
The flatter shape of the major indices' charts from last week looked rather comforting as compared to the forty-five degree downward sloped lines of the previous weeks. A new wave of European-based fears did not significantly affect the U.S. stock markets. U.S. Consumer Sentiment readings for May were above expectations and today (Monday), the stock markets opened on a positive note ahead of an array of domestic data, ignoring a report that indicated that March home prices were at their lowest levels since 2002. The March prices may be too outdated to measure the present condition of the housing market, as Existing Home Sales in April were 3.4 percent higher than March levels, as reported last week, and New Home Sales rose moderately in the same month of April.
Stock buybacks that largely replaced dividends in the recent decades are at their lowest levels since the Great Recession of mid-2009. Corporations boosted their capital investments, spending money to increase production capacity and the acquisition of competitors. This trend may explain in part the growth in the stock market that is not backed up by real GDP growth just yet. Out of two major fundamental components of stock value increase, dividend yield and capital gains yield, the expectations on growth of latter seem to be propelling the stock market forward at this time.
In the meantime, hopes are fading fast for virtual-based companies to become a basis for the new wave of economic growth, replacing old-fashioned industrial production and staple-style service. The highly anticipated IPO of Facebook on May 18th remained in the news throughout the past week. It's hard to say whether tensions associated with this public offering were just a random result of overheated market expectations or a planned in-style marketing action supporting the controversial image of the company. The stock briefly touched the $45 mark on its first trading day, only to reach its lowest to-day value of $30.94 two days later (almost a 20 percent decline from the offering price of $38). The surrounding stories began a couple of days before the IPO, when GM announced pulling its paid advertising campaign with the social network giant, citing other internet sources, such as Google advertising, as more effective. Right after the IPO, news of investment bankers' analysts cutting Facebook's earnings forecast was released. According to rumors, the forecast was cut before the IPO, but the release was held until after the stock hit the market.
After the Yahoo! board of directors ousted the CEO in a nasty manner last Fall, the company is still struggling to pacify shareholders. In an effort to convince them of the new strategy that will get the internet media giant on par with the successful leaders such as Google, Yahoo! announced a deal, selling 40 percent ownership of Alibaba, the Chinese e-commerce company. According to some reports, this makeover step may potentially cost investors a few billion dollars if the valuation of Alibaba at $63 billion is realistic as opposed to the $35 billion implied in the transaction deal.
In other news, Jobless Claims remained within the same range of about 370,000 and close to expectations. The new jobless claims may not be the most accurate measure of the employment situation anymore, as eligibility for benefits was exhausted by many during the years of recession and post-recession sluggish growth. April Durable Goods Orders, signaling production growth ahead, were significantly up from negative March figures and only slightly missed analysts' consensus figure of 0.5 percent. Oil prices continued to fall last week as the U.S. Energy department reported supplies at 22-year high, which is definitely good news for the summer-time, a period generally known for higher fuel prices.
Today, investors watch for Consumer Confidence and Dallas Fed Manufacturing Survey; tomorrow, on Wednesday, the Pending Home Sales Index will be released; Thursday is a day of major economic news – ADP Employment Report and Jobless Claims, GDP for the first quarter of 2012, Chicago PMI; Friday will conclude this busy week with Motor Vehicle Sales, Employment Situation, Personal Income and Outlays, ISM Manufacturing Index and Construction Spending. As the first summer month is on our doorstep, have a bright sunny week.