Bellwether Report Large-Cap Newsletter for December 15th 2006:
Thank You Mr. Market...
The major indices recorded one of the best performances in six-years today, as the November CPI report essentially took lingering fears of inflation off the table. The report showed unchanged readings for both the core and overall CPI. The market had otherwise expected there to be a gain of 0.2% for both the overall and core CPI. The result also indicted that core CPI fell to 2.6% from 2.7% compared to the same period a year ago.
This report provides more evidence that the Federal Reserve's efforts in slaying the inflation dragon have been thus far successful. As such, it has been the catalyst for the positive action in the market today. Now, the market is expecting a rate cut in early 2007 from the Fed, and this essentially sets the stage for the market to move even higher.
It is likely going to be large-cap stocks that will be the strongest performers. The structural changes that have been made in the earlier part of the decade in these companies have enhanced their productivity. This has especially been the case with adaptation and application of new technologies. With these systems now firmly in place, the unit cost of labor has been significantly reduced, resulting in greater efficiency. With this in mind, productivity gains are apt to continue to ramp up going forward.
This translates into a positive outlook for profit growth among U.S. companies for the foreseeable future. As such, price to earnings multiples will also likely expand in the coming year, helping to drive stock prices higher. It is interesting to see that many companies are buying back their common stock at a torrid pace. This conveys in no uncertain terms that these companies have faith in their future prospects. Given that, we are willing to bet that 2007 will be another banner year.
Have a Great Weekend.
Market Commentary By Conley Turner, Analyst of Wall Street Strategies.
