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Prieur Perspective: Stock Uptrend Resumes as Economy Rebounds


Investor confidence in the recovery of the global economy gains traction.

Of the 94 stock markets I keep on my radar screen, 47% (last week 63%) recorded gains, 47% (33%) showed losses, and 4% (4%) remained unchanged. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the winners for the week included SPDR S&P International Financial Sector (IPF) (+7.4%), iShares MSCI Turkey (TUR) (+7.2%), Market Vectors Environmental Services (EVX) (+6.7%), United States Oil (USO) (+6.1%), and iShares US Oil Equipment and Services (+6.0%) .

At the bottom end of the performance rankings, ETFs included United States Natural Gas (UNG) (-9.1%) (natural gas prices dropped to a 7-year low on worries about a supply glut), PowerShares Preferred Financial (PGF) (-7.8%), Market Vectors Solar (KWT) (-5.9%) and Claymore/MAC Global Solar Energy (TAN) (-5.5%).

On the credit front, the chart below comes from the annual report of the Bank for International Settlements (via Casey's Daily Dispatch) and shows that the crisis has developed in 5 distinct stages. Stage 5, beginning in March 2009, shows the rally in the MSCI World Index (red line), as well as the significant improvement in the LIBOR-OIS (overnight index swap) spread (blue) and the CDS spread of 18 international banks (green) -- heading towards the pre-crisis levels.

Other news is that the US government's popular Cash-for-Clunkers car sales-incentive program has burnt through most of its $3 billion funding in just one month and will come to an end on Monday, August 24. Meanwhile, the Federal Deposit Insurance Corp (FDIC) seized the Guaranty Bank of Austin on Friday, bringing the tally of US bank failures in 2009 to 81.

Referring to the stock market rally that is exceeding most expectations, the quote du jour this week comes from Brian Wesbury and Robert Stein of First Trust Advisors who wrote as follows in Forbes:
"The way we see it, those who were pessimistic about stocks and the economy early this year are going through the classic five stages of grief. First, they denied a recovery was going to happen anytime soon. Then they lashed out with anger at those who spotted signs of the recovery. Now, they are bargaining, admitting the existence of the recovery that they did not see coming, but belittling it. Next, as things keep moving up, we can expect them to get depressed. We don't expect acceptance to fully set in until late next year."
Not everybody is in agreement with Wesbury and Stein, as gathered from David Rosenberg's latest research report (Gluskin Sheff & Associates), saying:
"Econometric models we ran show that the S&P 500 has 4.0% real GDP growth priced in ... Now at the stock market bottom in March, the S&P 500 was priced for -2.5% real GDP, which is exactly what we are going to get this year, so the notion that the S&P 500 was egregiously undervalued back at 666 does not bear up to scrutiny. At the time, that level was completely realistic in light of the macro outlook."
No positions in stocks mentioned.
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