Flight To Risk Now In Progress

It was a pleasant opening yesterday for the market with positive results and market activity from Europe, as well as generally positive domestic economic reports in the morning. In particular, pending home sales were up 1.5% versus an expected 0.1% and last month’s -1.0%. Personal spending was a little better-than-expected while personal income was but a tad less-than-expected and lower than last month.

The coming week will be fairly full as companies continue to report Q1 earnings, and it is a busy week for economic reports as well. These include Chicago PMI, Case Schiller, and Consumer Confidence later todday; Construction Spending Wednesday; Initial Jobless Claims and Trade Balance Thursday; and the full monthly report of employment on Friday. Most are expected to be near expectations.

Last week, as you will note in the market stats below, Small-cap Growth led the week’s strong market, up 2.8%, while Large-cap Value trailed but was still up 1.75%. The SPY flirted with its all-time high of 159.7, which it set on April 11, and is flirting with it again today. Energy (+3.47%), Technology (2.78%), and Consumer Cyclicals (2.68%) led last week’s sector performance while Utilities, Healthcare, and Non-Cyclicals trailed with only Non-Cyclicals in the red.

Here are the Market Stats.

This week appears to be shaping into a classic “flight-to-risk” market -- indeed, the diametric opposite of the previous week. Most corporate reports beat on earnings, doing even better than the last several quarters, while most missed on revenues, in even worse fashion than recent quarters. For now, the market appears be “risk on,” although a bit flighty with rapid reversals in behavior.

Sign of a top? Not sure. We will do our quarterly analysis of valuations this week and report to you next week. Our sense is that valuations are well off the early 2009 bottom, but they are not near extremes. We believe, but must confirm, that forward values are just average or a tad over average across the board.

We would continue to seek growth stocks that are priced reasonably and perhaps favor mid-caps to ease our cautionary concerns. This week should be fairly important with the numerous important economic releases.

3 Stock Ideas for this Market
This week we did a GARP preset search in MyStockFinder:

Genworth Financial Corp (GNW) – Financials
Trading for 15x current earnings and 7x forward
Recent upward analyst revisions to EPS estimates
350% projected EPS growth for the current quarter

HollyFrontier Corp (HFC) – Energy
Trading for 6x current earnings and 9x forward earnings
Recent upward analyst revisions to EPS estimates
55% projected EPS growth for current quarter

Western Digital Corporation (WDC) -- Technology
Trading for 6.8x current and forward earnings
Upward analyst revisions to EPS estimates in the last 7 days for coming quarters and year
Positive technical trend