The Market This Week

The market this week demonstrated continued strength as gains from 2006 have carried over into the New Year. The Dow reached an all time record close on Friday even as oil gained back some significant losses from earlier in the week.

This weeks snapshot:
DJIA: Up 158.07 or 1.27%
S&P 500: Up 21.02 or 1.49%
NASDAQ: Up 68.57 or 2.82%

Friday was the 24th record close for the Dow Jones Industrial Average since October of last year. The gains where driven by a stronger than expected retail sales number from December. Retail sales (excluding the automotive industry) gained 1% for the month, beating analyst’s expectations. All of this positive economic data is actually somewhat of a disappointment for investors as it pushes the prospect of the Federal Reserve cutting interest rates further away. The end of 2006 held a sentiment on the Street that the economy was slowing and interest rates would be cut in the first half of 2007. Now it seems that unless the economy shows signs of weakening we cannot bank on a cut anytime soon. This has a direct impact on Wall Street as lower interest rates means lower costs of financing and borrowing by both businesses and consumers.

Crude oil was down $3.32 per barrel or 5.90% for the week. Crude closed at $52.99 which represents a decline of 13% for the year.

Overall, the markets are showing that the gains made in 2006 are going to carry over into 2007. We are somewhat concerned that investors are chasing returns that may turn on them if and when the market corrects itself. We, however, are optimistic because as value investors we trust our investing decisions as they are founded on firm analytics. Until next week have a productive and profitable week!