Bullish sentiment remains intact as investors cheer each piece of news – good, bad or ugly

Deals in private equity and good economic data pushed US market higher for the week ended 1 June, 2007. Other than that, there was not much of any catalyst. But market showed its resiliency and continued with its journey of records during the week.

Though a major sell off in China during the middle of the week reminded of 27 February shake off, investors just shrugged it off and surprisingly cheered every news that hit the market during the week, including a downward revision to first quarter real GDP growth.

Long term optimism just drove the market the past week. All the three indices closed substantially higher for the holiday shortened week. S&P 500 and Nasdaq were up all the four days of the week, from Tuesday to Friday. Dow closed lower just on Thursday, 31 May, 2007 when it dropped by mere 5 points.

The Dow Jones Industrial Average gained 160 points for the week. Tech heavy Nasdaq gained 57 points while S&P 500 gained 20 points. S&P 500 made records on three consecutive days during the week.

On the economic news front, May consumer confidence was upgraded and May ISM manufacturing survey increased to 55 from 54.7 in April. The core personal consumption expenditure (PCE) deflator was up just 0.1% for April, below an expected 0.2% coming in range with Fed’s inflation estimates. On Friday, Labor Department reported that 157,000 jobs were created last month, exceeding forecast of 150,000. Unemployment held steady at 4.5%.

During the week, the acquisitions news that hit the headlines were – Royal Bank of Scotland increased its bid for ABM Amro and thus tried to keep Barclays away, Archstone-Smith and CDW went private for $22 billion and $7.3 billion respectively, Wachovia bought A.G. Edwards for $6.3 billion. Morgan Stanley bought an Australian real estate concern for $3.9 billion and Ceridian went private for $5.3 billion.

On the earnings front, Dell surpassed analysts’ expectations but gave a mixed outlook and announced 8000 job cuts. Costco reported earnings in line with expectations while Sears disappointed.

Executive Summary

For the week, DJIx is up by 1.2%, S&P 500 is up by 1.4% and Nasdaq is up by 2.2%. All 3 indices were up everyday except for Dow on Thursday. It was Nasdaq’s best weekly gain since week ended 24 March. For the year, the Dow is up by 9.7%, Nasdaq is up by 8.2% and S&P 500 is up by 8.3%.

Good, mixed or bad news – investors cheered with any news. Friday’s job report signaled a strong economy. Shanghai’s huge sell-off on Wednesday and downward revision for Q1 real GDP growth failed to deter any enthusiasm. Oil prices closed little changed for the week, holding near $65 a barrel. The 10-year note yield continued its trend higher and was at 9 month high and closed the week at 4.96%.