Weekly Recap - Week ending 18-Sep-09

U.S. equity markets picked up where they left off last week, rallying in four out of five sessions to close with solid gains.  The S&P 500 rose 2.5%.

There were bullish developments, but for the most part this week's rally was just a continuation of the recent upward trend.  With the possible exception of Wednesday's 1.5% advance, there were no sharp moves, just a slow upward drift with any market pullbacks limited in scope.

All ten sectors that make up the S&P 500 rose, led by Materials (+4.7%) and Financials (+4.5%).

Investors received good news on the economy this week.  On Tuesday the Advance read on Retail Sales came in at 2.7% (consensus 1.9%), Sales ex-autos came in at 1.1% (consensus 0.4%) and Empire Manufacturing came in at 18.9 (consensus 15.0).  That was followed by better-than-expected Industrial Production on Wednesday (0.8% vs. 0.6% consensus) and Philadelphia Fed business outlook survey on Thursday (14.1 vs. 8.0 consensus).

The Empire and Philly Fed numbers clearly signalled that the manufacturing sector is beginning to come on-line and we should expect strong manufacturing production over the next few months.  Unfortunately it is still to early to declare how the increase in production will play out in GDP growth.

There was also positive commentary during the week.  On Tuesday Federal Reserve Chairman Ben Bernanke stated that the recession is "very likely over".  That same day reports circulated that investor Warren Buffett had returned to the market. Mr. Buffett confirmed it the next day, saying that while the economy "hasn't gotten worse" it also hasn't "gotten much better" over the past three months, and that he doesn't expect a 'double-dip' recession.

But not all of this week's headlines were positive.  There was a slow trickle of earnings results that failed to live up to expectations, including Oracle (ORCL), Best Buy (BBY) and FedEx (FDX), although the latter was known after preannouncing results last week.  Whether those expectations have been raised too far, reflecting more the equity markets' view of the economic recovery vs. reality, remains in question.  Certainly, in our view, the concern next earnings season will be on the revenue line, which is where many companies fell short this week.

Looking ahead, next week will be extremely busy. There will be the usual economic data, most notably Existing Home Sales on Thursday, Sept. 24 and Durable Goods Orders on Friday, Sept. 25.  But the Fed is up first on Wednesday, Sept. 23, with investors watching to see if the FOMC has changed its policy directive.  Longer term Treasury auctions also return, including $43 billion of 2-years on Tuesday, Sept. 22, $40 bln of 5-years on Wednesday and $29 bln of 7-years on Thursday.

Index	Started Week	Ended Week	Change	% Change	YTD %
DJIA	9605.41	9820.20	214.79	2.2	11.9
Nasdaq	2080.90	2132.86	51.96	2.5	35.2
S&P 500	1042.73	1068.30	25.57	2.5	18.3
Russell 2000	593.59	617.88	24.29	4.1	23.7