The market saw green arrows last week on light volume, mixed economic news, and mixed geopolitical news. The Dow gained 2.8% for the week, with the S & P up 2.5%. However, the risk trade was back on and the NASDAQ, despite an early hit in the Semiconductor group, rallied 1.1% thanks to a 1.12% pop to end the week on Friday. The one market indicator that has clearly changed is volume. Two weeks ago, when the market plunged 350 points, the volume was surprisingly light for a day with so much volatility. All of last week was very much the same, with the pace of average volume falling despite the still robust volatility. Friday barely cleared a billion shares on the NYSE and the NASDAQ was at just 1.88 billion. By comparison, the NYSE 10-week moving average volume is at 1.44 billion and the NASDAQ had been trading up a storm, averaging 2.61 billion. Up days and down days, the volume has moved into official summertime levels. This is important because it is often used as an indicator of conviction. Volume was light on the decline and it was light on the rally back. We need to acknowledge that this is the new norm for summer and not an indicator of conviction, or at least it needs to be taken in context of recent volume levels, not the historic levels until we get into August or September.

Last week we had very little important data. Weekly jobless claims were a disappointment, holding at 456,000, but continuing claims posted a surprising drop to 4.46 million. This can be a tough number because it represents individuals falling off the collection rolls or even not counting those on extended benefits, so it isn’t a great indication of where unemployment is headed. Fed Chairman Bernanke spoke before the congressional leaders, reiterating the Fed’s projection that we would not see a double-dip recession. However, the tone was clearly more subdued, warning that housing and the economy were likely to slow due to government stimulus programs coming to an end. The private sector has been slow to pick up the pace to supply much needed new jobs. Still, if we use the general definition of two consecutive quarters of negative GDP as whether or not the economy is in recession, we are not likely to see a double-dip. There are several reasons. At the end of the first quarter, Bloomberg reported that the S & P 500 companies had $1.28 trillion in cash and equivalents on hand (Businessweek.com April 28^th). Just the top 15 companies alone had $350 billion. According to a statement on CNBC, the number for the S & P 500 was up to $1.8 trillion, but I couldn’t find it in writing to decipher exactly what they were including in that number. The point is, companies are hoarding huge amounts of cash, over twice that held in 2005. They are bracing for this “double-dip” that may or may not come. The recent inventory data suggest a small build in inventories through the 2^nd quarter, but nothing compared to the 6-quarter, $480 billion drop since mid 2008. Finally, as disappointing as the jobs numbers have been, companies are not rushing in to hire new workers and add to their costs, for fear the economy may contract again. What’s bad news for jobs may be good news for the balance sheets of companies short-term. Obviously, broad-based economic growth depends on an expansion in jobs, but for Q2, there may be some positive surprises in the mix. If huge cash positions, low inventories, and a tight rein on costs don’t portend solid earnings for companies mainly focused on domestic sales, I’d be surprised. Don’t forget, the second quarter of 2009, for comparison purposes, was the last real disastrous quarter.

National Semi reported earnings for their fiscal 4^th quarter of 33c and gross margins expanding to 68.8%. The fiscal 2011 expectations were raised to a gain of 3% to 5% for the year. This came on the heels of the Semiconductor Industry Association report on Wednesday evening that global chip sales for 2010 were expected to increase by 28.4%. The SOX gained 1.4% on Friday, leading the end-of-week rally. The market was trading mixed, if not mostly negative throughout much of the day on disappointing May Retail Sales. The May decline of 1.2% was far worse than the 0.2% gain anticipated. April had been a positive surprise, coming off of a strong March. Year-over-year, sales are still up considerably, but it was a disappointing number nonetheless. Fortunately, consumer sentiment was not swayed by all the recent negatives. The University of Michigan survey rose to 75.5 from 73.6, its highest level since January 2008. The S & P jumped more than 5 points in the final 30 minutes of trading. It may have been that the shorts were more anxious to cover ahead of the weekend. The fear has been that the weekends produce bad news from Europe. That fear has hurt the markets on Friday afternoons of late. When everyone gets on the same side of a trade, it tends to go the opposite way.

This week should be interesting. Technically, we moved up off of a minor reversal day on Tuesday and extended the rally to make it a minor reversal week to the upside. On the economic front, there are several interesting, and potentially market-moving data. The PPI and CPI should be a big yawn. Housing Starts should show a rather significant decline, now that the May data reflect the first post-stimulus month that one could have gotten a loan to start building. The two big numbers out are May Industrial Production and the June Philly Fed Index. Industrial Production is expected to grow at 0.8% for the month. If this were to slow considerably off of this pace, it would raise concern that the economy is slowing. Manufacturing has been one of the strongest sectors. The Philly Fed Index is expected to dip to 20.0 from 21.4, but a much sharper decline or any rise should get the market’s attention, as it is the first major June number. Finally, the attention on earnings is gaining momentum, and that should be good for stocks. However, we cannot ignore the negative impact in the Gulf and Florida on some industries due to the oil spill and the continued bad news strolling out of Europe.