LPL Financial Weekly Market Commentary for July 6, 2010

Jeffrey Kleintop, CFA
Chief Market Strategist
LPL Financial

We can expect a quiet week this week, for a change. The shortened holiday week will yield little economic data, the calm before the start of the earnings season next week, and little on the political agenda as Congress heads out of town for the week long Fourth of July holiday recess. However, next week heats up with a spate of important economic data, the start of earnings season, and the Senate vote on financial regulatory reform. This week’s vacuum of news and events will provide investors time to reflect on the recent economic data and market decline from the perspective of the fundamentals, valuations and technicals.

Highlights

• This week’s vacuum of news and events will provide investors time to reflect on the recent economic data and market decline from the perspective of the fundamentals, valuations and technicals.
• The fundamentals support the view that the recent spate of softer economic data is the typical soft spot that occurs one year after the start of a recovery.
• Valuations support a bullish case for stocks with the S&P 500 forward price-to-earnings (PE) ratio having fallen to 11.5.
• The market environment that we forecast for 2010, consisting of low returns and high volatility, make watching overbought and oversold conditions the paramount technical indicators. Technical oversold conditions are now prompting us to recommend buying stocks.

 

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Tagged as: LPL Financial Research, Weekly Economic Commentary, Weekly Market Commentary