Financial Professionals


Finally -- Something that I really like!

The capital markets are in the midst of the proverbial slump (Figure 1.1). For those counting, you have to go back to the first Monday in May when the world awoke to the news of Bin Laden's death. Since then, a steady stream of disappointing economic data, both domestic and global, has weighed upon the markets and fostered a .5% decline in the S&P 500 Index.
Reversing the negative momentum is difficult, but sometimes there exists a subtle sign here and there that a catalyst may emerge. Momentum can shift that quickly on what appears to be a small, insignificant note, somewhat similar to the baseball hitter mired in a 0-for-20 slump, who tosses out his bat and punches the ball into the outfield edge for a hit.
On Monday, June 27, the S&P 500 Index rose +.92%. Although I am unwilling to sound the "all clear," I can say, "Finally, there is something that I really like." Specifically:  
  • Global sportswear leader Nike reported earnings after the close. Nike has been hamstrung with rising costs for labor, transportation, and material. Naturally gross margins are compressing. Once again, this quarter Nike reported further erosion in gross margin, now at 44.3%, down from 48% late last year. However,  what is very encouraging is Nike's +22% currency-neutral sales here in the U.S., well above estimates. Obviously, the price of Nike's stock rose. More importantly, it is evidence the economic slowdown might not be as bad as feared.
  •  U.S. enterprise spending on IT (Information Technology) may rise +5.6% in 2011 according to the latest survey by IDC (International Data Corp.). Positive spending trends on security initiatives, global growth, cloud AND social media remain intact. Keep in mind, projections for U.S. 2011 GDP range from +2.5% to +2.9%. Robust enterprise spending is a mandatory component for a successful second half (2H) 2011.

Stabilization in the rate of decline during a market correction is a first step. In recent days, the market appears to be stabilizing. The first two weeks will be critical to determining the prevailing trend for the capital markets in 2H 2011.
Just like that punch single that ends a batting slump, in the form of IDC data and Nike earnings, finally, there IS something that I really like!
Figure 1.1  S&P 500® Index, 4/26/11 to 6/27/11

Source:  Bloomberg

Past performance is not a guarantee of future results.

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.