I'm feeling a bit bullish now. At least more bullish than I have in awhile.
Why? This morning's surprising employment numbers are certainly a factor, especially considering that the loss of nonfarm payrolls was far less than expected.
What really has me optimistic, however, is the upward movement of the major indexes and the recent trend in aggregate earnings estimate revisions. The Dow and the S&P 500 have broken above resistance levels that have kept them down since mid-January. Yesterday, the S&P 500 closed above the 1400 level with its late day rally.
At the same time, brokerage analysts have become less pessimistic. During the past three weeks, the ratio of positive to negative earnings estimate revisions has improved from 0.54 to 0.77. (Excluding financials, the ratio is 0.93. A ratio of 1.0 indicates that an equal number of estimates are being raised and cut.)
Could the anticipated economic recovery that everyone has been waiting be forthcoming soon? Today's employment numbers suggest along with first-quarter GDP suggest that the economic slump may not be as bad as some feared.
The stimulus checks that are in the mail (and who says that government does not work) should help same-store sales at retailers like BJ's Wholesale (BJ), Dillard's (DDS), J.C. Penney (JCP). Even GameStop (GME) could get a boost, though Grand Theft Auto IV and the Wii Fit are more likely to impact sales at the video game retailer than the stimulus checks themselves.
I've been hopeful for a second-half recovery. However, I've realize that there remain storm clouds in the sky and that bear market rallies often turn into costly bear market traps. Nevertheless, now may be the time for those investors who have been sitting on the sidelines to consider sticking their toes into the water. Conditions still aren't good, but there are indications that things could be starting to improve.
Read the full analyst report on BJ.
Read the full analyst report on DDS.
Read the full analyst report on JCP.
Read the full analyst report on GME.
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