Marc Pado Comments: More Positive Reports May Boost Rally

July 26, 2010, The Business Times

STRONG quarterly results are supposed to boost share prices, especially when they handily beat Wall Street forecasts. For a change of pace, that's what happened last week. A round of encouraging earnings reports from corporate behemoths such as Microsoft, American Express and Caterpillar made investors sit up and helped major indices turn in their second best weekly showing of the entire year.

It also promised to put the stock market in a rally mode that could push shares beyond the range-bound trading of the past six weeks. But with stocks finishing last week just below the S&P 500 index's technical resistance of 1,103 that has often produced a fall back down to the 1,060 range, it will probably take positive news from the upcoming economic data this week along with more estimate-walloping profit growth numbers by corporate America to lift stocks much further.

'The market is in a tug of war between the attractiveness of stocks trading at only 12 times earnings with 10-year treasury yields below 3 per cent on the one hand, and concerns over a weak recovery and slowing economic growth as we move into the second half of the year, on the other,' noted Marc Pado, chief market strategist at Cantor Fitzgerald. 'I think we'll move up again this week but I don't know for how much longer the rally will last.'

Although investors initially failed to respond with much enthusiasm in the previous week to a flood of good news - Goldman Sachs reaching a settlement with the Securities and Exchange Commission on its civil suit, which was the first rally-puncturing catalyst in late April, BP's success in stopping the flow of oil into the Gulf of Mexico, and economic reports which calmed fears of a crisis in the eurozone - market sentiment does appear to be on the mend.