It sure was nice to see stocks make a nice move higher yesterday. Especially after I came out yesterday and said Dow 10,000 and S&P 500 1,071 were support points.
It’s also interesting that this advance came on the first day of February. Recall that the positive GDP surprise came on Friday, the last trading day of January. Investors were not interested in buying stocks in January. But now that it’s February, the buyers are back.
It might seem strange, but mutual funds and other institutional investors don’t base their buy and sell decisions solely on making money. They have to play the percentages. And that sometimes means taking profits when the economic data supports better earnings and higher stock prices.
Is that what took stocks lower in January? Maybe, although it’s a little too soon to say the upside trend has been re-established. But sometimes, when you hear hoof-beats, it’s best to think horses not zebras.
The financial media has a tendency to think zebras. The writers always want to find the reason behind the selling. It’s China, maybe it is earnings, or is it economic data? The list goes on. Of course, I’m not saying that these items aren’t factors. But at the end of the day, it is institutional investors that drive market direction. And like I said, they will take profits sometimes, just because they can.
Here’s a LINK to an interesting article and accompanying chart from Bloomberg. The chart is a Jobs Index chart. The Jobs Index rose to 4.3% in January, after two straight months at 3.1%. Yes, ladies and gentlemen, this index is forecasting jobs growth for February. And as the longer-term chart attached shows, upticks in employment tend to last a while. This could be really good news.
Of course, if jobs pick up, we’ll have to worry about interest rates picking up, too. And I’m sure some will make that sound like the end of the world. Me? I’ll take some job growth, even if it means interest rates move higher.
It will be interesting to see how investors treat UPS (NYSE: UPS). The company beat on both earnings and revenues, even though revenues were lower than last year’s 4th quarter. It’s forecasting a strong 17% boost to profits in 2010.
Shipping companies like UPS are often considered to be proxies for economic growth, because increased economic activity means more shipping. If investors believe the economy is improving and will boost revenue at UPS, it should trade higher.
Homebuilder D.R. Horton (NYSE: DHI) reported a profit for the 4th quarter. This may come as a surprise, but orders and revenues were up. Homebuilders will recover before the housing market does, as they benefit from cheap land and materials from the weak economy.
New sales order were up 45% in the quarter, which is a big jump. This is why I suggested Daily Profit readers take a position in another builder, Hovnanian Enterprises (NYSE: HOV) a few weeks ago.
Will that help REIT Maguire Properties (NYSE: MPG)? We’ll see. Residential and commercial real estate are pretty different. But Maguire has some valuable assets in Los Angeles and the stock is sitting at a support level at $1.60.
SmallCapInvestor PRO members just discovered a $3 company that makes amorphous alloy core transformers for the Chinese market. The Chinese government has mandated that old silicon steel core transformers be replaced by more efficient transformers, like the amorphous alloy core ones.
This isn’t earth-shaking news, but this little company is expanding capacity by 200% to meet the demand. I’ve got a $5.82 target for the stock, which is an 82% gain from current level. You can get the details HERE