Drop in commodities reduced the risk appetite of stock investors...

Risk Appetite Reduced by a Drop in Commodities

Posted by Anthony Dolan on May 8, 2011 in Business, Economy

The recent rally’s sustainability doubts and the drop in commodities reduced the risk appetite of stock investors. With 1st quarter’s data reporting almost finished, stocks may suffer support weaning. The last 2 quarters’ top performers, commodities and commodity-related stocks have weakened this week. The S&P energy index, GSPE ended 7% weaker. iShares Silver Trust’s week went bad after its heavy losses.

Calvert Asset Management Company’s senior VP and equities’ chief investment officer, Natalie Trunow said it’s hard to pinpoint the time when the bubble bursts and hard to go against the current. But when it bursts, it’s precipitous usually, she added. Q1’s earnings and the Fed’s QE2 purchasing program are about to end, the stock market may weaken in the short term, she added. She wouldn’t be surprised if a somewhat softer summer or somewhat softer next couple of months happen, but she remains positive on the U.S. market longer-term.

Since March, this week was the S&P 500’s worst despite Friday’s unexpected strong employment data. It ended the index’s 4-day losing streak. McMillan Analysis Corp.’s Larry McMillan said it’s now just on top of important support at 1,330. Anything lower than that may turn the intermediate-term picture bearish, he said.

Market’s longer term sentiment remains positive despite this week’s doubts as the technical gauge shows no signs of market overbuying. Strategist Jeff Rubin said their view remains and they still like the market. Hank Smith of Haverford Trust Co said stocks’ main view remains bullish and the economy and valuations remain attractive. But with any bull market, it’s healthy to have pullbacks, he added.

Employment report by the Labor Department on Friday reflected a higher than expected increase last month. U.S. companies hired at the fastest rate in 5 years. There is an underlying strength in the economy, analysts said. However, employment was the poorest performer. Next week’s jobless benefits claims and retail sales report will be highly anticipated to see the health status of employment and consumer spending.

There were increases in earnings forecasts when the reporting period began. Expectation on S&P 500 companies is now 18% higher from April’s estimated 13% rise. Out of 438 in the 500 S&P companies, 69% reported higher than estimated earnings.
Some European finance ministers discussed the euro zone debt crisis. Greece said speculations of it leaving the euro zone are not true but it caused some gain reductions on stocks on Friday. Wall Street’s ‘flash crash’, when prices suddenly went down and almost $1 trillion of U.S. stocks’ value was lost before the market rebounded happened a year ago on Friday. It shattered many investors’ confidence but the market has fully recovered and has rallied since September. S&P 500 has increased 28% since then.

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