Trend Watcher – Is Consumer Discretion an Oxymoron?

Joseph Gomez, Sr. Investment Advisor and Portfolio Manager

Up until this Tuesday, the S&P 500 had closed in overbought territory (more than one standard deviation above its 50-day MA) every single day this year. The 1.5%+ decline on Tuesday moved the S&P 500 back into “neutral” territory for the first time in 43 trading days.

While the S&P 500 is right at its highest level in years, investors and analysts still remain skeptical of this market (which is a good thing). The minimal declines we saw last week and early this week were enough to spook individual investors once again. As shown in the chart below, the AAII Bullish sentiment reading hit its lowest level of the year this week.

Taking a quick look at the dollar, the US Dollar index continues to move inline with US equities this year, which is much different than what we saw in 2011 when the two moved in opposite directions. We always argue that a strong dollar is good for domestic equities in the long run, so it’s good to see the two asset classes move more inline with each other.

The housing crisis obviously led us into the bear, and we need to see housing come back for the current expansion to experience any kind of longevity. Surging homebuilder stocks is a very positive sign, so the breakout to finish the week is worth noting.

I had a busy weekend celebrating my birthday and got a chance to escape the tower for a change. I did a little shopping, dining and even went to a Miami Heat game. I found crowds everywhere. In a nutshell, the consumer is back with a vengeance despite higher prices at the gas pump. It’s no wonder retail stocks are doing so well. The housing market is showing signs of stability, unemployment is inching lower, all of which is resulting in a return of consumer confidence.

The two best performing stocks last week in our client portfolios were, Lowe’s Companies (LOW), up 5.83% and Ulta Salon, Cosmetics and Fragrances (ULTA), up 4.85%.

Below, I have included key interest rates, an economic calendar and the charts of the above-referenced securities. Have a pleasant and productive week.

Key Rates from Bloomberg.com

	CURRENT	1 MO PRIOR	3 MO PRIOR	6 MO PRIOR	1 YR PRIOR
Fed Funds Rate	0.13	0.10	0.07	0.12	0.16
Fed Reserve Target Rate	0.25	0.25	0.25	0.25	0.25
Prime Rate	3.25	3.25	3.25	3.25	3.25
US Unemployment Rate	8.30	8.30	8.70	9.10	9.00
1-Month Libor	0.24	0.25	0.28	0.23	0.26
3-Month Libor	0.47	0.51	0.54	0.34	0.31

Mortgage* (National Average)

provided by Bankrate.com

	CURRENT	1 MO PRIOR	3 MO PRIOR	6 MO PRIOR	1 YR PRIOR
30-Year Fixed	3.88	3.89	3.96	4.16	4.85
15-Year Fixed	3.14	3.21	3.30	3.37	4.11
5/1-Year ARM	2.75	2.88	2.90	2.96	3.52
1-Year ARM	2.72	2.72	2.96	2.96	3.03
30-Year Fixed Jumbo	4.49	4.63	4.70	4.76	5.44
15-Year Fixed Jumbo	3.66	3.96	4.00	4.07	4.72
5/1-Year ARM Jumbo	2.99	3.21	3.14	3.18	3.84

Economic Calendar by Econoday.com

Clients, principals and/or employees of Alhambra Investment Partners may have long or short positions of any above-mentioned securities. For information on Alhambra Investment Partners’ money management services and global portfolio approach to capital preservation, Joseph Gomez can be reached at jag@4kb.d43.myftpupload.com.

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