Sunday, April 24, 2011

US markets rise on strong earnings

US markets rose on a shortened Easter long weekend, on better-than-expected earnings from companies such as Apple. On Friday, the S&P 500 rose 7.02 points or 0.53% to 1,337.38. The Dow gained 52.45 points or 0.42% to 12,505.99. For the week, the S&P 500 and the Dow both gained 1.3%. 

US debt at centre of attention

On Monday, S&P put US government debt on negative outlook. That sparked a fall in the markets, and heavy media attention on the US debt situation. However, there are likely few short-term effects, though the US debt situation is a significant long-term problem.

Weak initial jobless claims

The markets faced a 2nd consecutive weak of worst-than-expected initial jobless claims data. The US Labor Department announced a fall in claims by 13,000, resulting in 403,000 claims. However, this was higher than the 392,000 that economists expected. 

Gold and silver soar

Gold broke above the $1,500 mark this weak, on the US debt outlook and the continuing debt crisis in the euro zone. On Thursday, US gold futures rose $4.30/ounce to settle at $1,503.8. On Friday, spot gold hit a record of 1,512.5 at one point. Meanwhile, silver reached $46.69/ounce, for a weekly rise of 8.4%.

Looking ahead to next week

All eyes will be on US Federal Reserve Chairman Ben Bernanke, as he appears at a press conference on Wednesday. Investors will be looking for whether loose monetary policy will continue in 2011 and 2012 after QE2 expires at the end of June. In addition, they will be looking to see whether a QE3 will be implemented.

Ben Bernanke, regarded as a dove, will likely maintain a loose monetary policy for the rest of 2011. However, with an economy and a stock market that are far stronger than in August 2010, it is unlikely that a QE3 will be announced. Thus, markets will have to come to terms with the end of QE2, which could start a sell-off, since QE2 was a big reason for the 25%+ rally in the markets since August.

In addition, the US will announce 1st quarter GDP on Wednesday. Economists expect a weak showing of 1.8%, far lower than the 3.1% in the 4th quarter.

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