Weekly Risk Report 04/06/2009
The first quarter ended with erasure of much damage. Some of the gains will need to be consolidated in the short term. Value Line now shows 53 companies whose stocks have risen more than 100% in the latest quarter. That’s only 1% of the Value Line expanded edition’s universe, but considering there were none just a few weeks ago, this is a significant change. For both the larger and smaller cap stocks we now see the building of moderate speculation.
Price/Earnings for the 5000 stocks in Value Line is still a moderate number. When combined with the 13 week Treasury coupon rate it indicates very low risk when compared to our 27 year database. While 1st quarter earnings may show the stresses of the halt of consumer spending in the 4th quarter, it appears the spending pendulum has started to return to a more normal path.
Overall market risk has risen slightly in the last few weeks. It still remains near the very bottom of our data history. The rapid decline in Cumulative Risk continues as this image shows:
The steep slope from the start of the 4th quarter of ’08 continues through the current week’s data. Weekly we review all our data for signs there has been a shift in direction. Historically as this graphic shows, risk moderation and expansion can continue for very long periods. The rate of change is what is of interest currently.
With mortgage money now becoming available at near record low interest, consumer spending is starting to recover. On a trip last week I found airports busy and parking well utilized. It is interesting to note that overseas travel remains slow while domestic travel is strong for a recessionary period. Business conference activity slowed dramatically in the short term, but long term planning and bookings remain very strong.
It would appear that those with an investing horizon longer than three heartbeats are becoming more willing to again participate in the U.S. equity markets. Strength in Financials, Industrials, Information Technology and Basic Materials are early signs of this longer term vision. We are seeing strength overseas as well. Geographic areas of Europe, Asia and Latin America are showing gains from their recent lows of 20% to 30%. We remain vigilant, watching for opportunities to capture gains and reduce risk.
