Hennion & Walsh Trending

The DJIA has just crossed 11,000 – a significant milestone in the continuing recovery of this widely recognized U.S. blue-chip index. In fact, the last time the Dow closed above 11,000 was back on September 26, 2008. However, before everyone starts to uncork their champagne bottles, we, at Hennion & Walsh, would suggest that it is too soon to signal “all-clear” for the equity markets and too soon to declare an official end to this current U.S. recession.

With respect to the economy, the National Bureau of Economic Research (“NBER”), which identified the beginning of this recession as starting in December 2007, recently stated that, “�even though most indicators have turned up, the committee decided that the determination of a trough date on the basis of current data would be premature.” While we would agree with the NBER sentiment, we find one piece of current data related to manufacturing that is very intriguing. The Institute for Supply Management (“ISM”) Manufacturing Inventory Index increased in March to the highest level that it has reached since 1984. According to Keith Hembre of FAF Advisors in the April 2010 edition of Review & Outlook, “The ISM Manufacturing Index has historically displayed a high level of correlation with financial markets, as it is a key indicator of cyclical strength in the broader economy.”

With respect to the equity markets, we would suggest that the days of heightened volatility are not behind us and the domestic equity markets will struggle in this transition year to find the next catalyst to add further fuel to the meteoric rise that the markets have experienced since the March 9, 2009 low was reached. A strong rise in corporate profits, driven by sales as opposed to revenue increases, could be just this catalyst as it would suggest that individuals, and businesses, are starting to spend again.