CLOSING COMMENTS 6-26-06

The Last Week in Review:

The Fed policy announcement due on Thursday hangs over the market this week. Though there is little doubt what that announcement will say. It shouldn't bring much good news for stocks though the overall market outlook is not entirely bleak. The market is pricing in a 100% probability of a rate hike to 5 1/4%. There is also little chance of any substantial change in the wording of the statement.

A shift from in focus to earnings following the Fed policy announcement could buffer the Fed announcement. The market often rallies during earnings season, and a very good 10% or 11% quarter this time could do the same. The S&P 500 now trades at just 15.7 times operating earnings. If that multiple holds a 10% growth in earnings over a year should lead to a 10% rise in the S&P 500 index. Ultimately, the value of a stock is a function of earnings. If earnings keep rising and interest rates eventually top out, the value in stocks will come through once again. The still very strong trend in earnings has been much overlooked during the recent market downturn.

The Dow closed the week down 25 points, trimming its year to date gains to 2.5%. The NASDAQ lost 8 points increasing annual losses to 3.8%. The S&P lost 7 points to bring its year-to-date loss to 0.3%. The Russell 2000 dropped 3 points for the week holding on to its yearly gain of 2.5%.

The Week Ahead

The economic calendar will provide important data to help the Fed make its decision on Thursday afternoon at 2:15 pm EST. Prior to the Fed policy statement the May New Home Sales will be released on Monday. Tuesday the May Existing Home Sales will be reported along with June Consumer Confidence data which is expected to show a slight decline from May. Thursday the May Help-Wanted Index will be reported after the bell. Friday morning, May Personal Income & Spending numbers will be reported along with the Revised June Michigan Sentiment Index and the June Chicago Purchasing Managers Index.

There are a few market-moving companies reporting results this week. On Tuesday Nike (NKE) reports earnings. General Mills (GIS) releases numbers along with Paychex (PAYX) on Wednesday. On Thursday A.G. Edwards (AGE) reports earnings along with Research In Motion (RIMM).

The conference schedule is light this week. Jeffries & Co. begins its three-day Life Sciences Conference in New York on Monday. Tuesday, Bank of America Securities starts it three-day Gaming Conference in Las Vegas and William Blair & Company begins its three-day 26th Annual Growth Stock Conference in Chicago.

In summary: keep an eye on Fed policy statement.

Stay tuned!