Now on Financial-Planning.com: A weekly investment outlook. Look for these forward-looking reports for planners every Monday. 

The Numbers

Tuesday:

• Consumer Credit report
• Federal Reserve March meeting minutes

Wednesday:

• Wholesale trade inventories for February

Thursday:

• February Trade Deficit
• Retailers report comparable-store sales for March

Friday:

• Markets closed for Good Friday

FORECASTS

David Kelly, chief market strategist, JPMorgan Funds:

After an action-packed couple of weeks, this week should be slower in terms of market-moving events. Passover and Easter fall in the same week this year, which on its own, ought to make for a quieter week. Some investors will also be distracted by the start of the baseball season, the end of March madness and Tiger Woods quest for a fifth Master’s title.

On the economy, numbers on Consumer Credit on Tuesday and Wholesale Inventories on Wednesday are unlikely to raise more than a ripple of interest. International trade data on Thursday may generate a greater reaction as it is likely to show a continued sharp improvement in our trade deficit reflecting week imports. Chain-store sales, also due out on Thursday, will be examined for signs of economic stabilization as will Mortgage Applications on Wednesday and Unemployment Claims on Thursday.

While the 1st quarter earnings season technically kicks off this week with Alcoa’s numbers on Tuesday, only 3 other S&P500 firms are due to report.  Earnings estimates are dismal with analysts collectively expecting a 37% year-over-year decline in operating earnings. However, with expectations so low, it shouldn’t be hard for many companies to match or beat them, particularly since the first-quarter slide in GDP growth looks to be “only” between -2% and -5%, compared to the -6.3% seen in the fourth quarter. Most important will be the reports by financial firms, as a continued flood of writedowns could easily stall the recent stock market rally, while more stable bank earnings could give investors hope that this rebound, unlike so many over the last 18 months, is the real thing.

Global Markets Insight
David Krein, senior director, institutional markets, Dow Jones Indexes:

In strong market declines such as that experienced over the last few months, asset class correlations tend to quickly jump to higher levels. There are several factors behind this, some obvious and not-so-obvious, but in a market such as this one, nearly all are at play: general risk aversion and preference towards capital preservation across multi-asset portfolios, illiquidity in one market can drive selling in another unrelated but more liquid market, voluntary institutional deleveraging (or involuntary via margin calls), and so on.

If you have been tracking the 3-year correlation between various asset classes, you will notice that current levels are at or near their all-time highs. Equities in developed ex-U.S. and emerging markets are currently 25% higher correlated to the U.S. equity market. Likewise, real estate and commodities are currently two to four times higher than their historical average over the last 17+ years.

From TrimTabs Weekly Liquidity Review
Charles Biderman, CEO, TrimTabs

As much as Wall Street wants to believe otherwise, the U.S. economy is still in horrible shape. Income tax withholdings tumbled an adjusted 3.7% y-o-y in the past two weeks and 3.8% y-o-y in the past four weeks despite the boost from the early Easter last year. We estimate based on withholdings that the U.S. economy shed 725,000 jobs in March, the second-highest monthly job loss of the current cycle, and job losses are continuing at about the same pace now.

The smartest players in the stock market are well aware of how badly the economy is performing because they have been buying few shares. Since the rally began on Tuesday, March 10, announced corporate buying (new cash takeovers + new stock buybacks) has been a pathetic $2.1 billion. Not only is this amount down 90% from $21.1 billion in the same period a year ago, it is equal to less than one-quarter of the $8.6 billion in corporate selling. In addition, insider buying of $2.5 billion on the past 60 days was down 75% from $10.1 billion in the same period a year ago. 

As companies have sold shares into strength, investors have become upbeat. The Investment Company Institute reports that U.S. equity funds took in $2.3 billion in the week ended Wednesday, March 25, the highest inflow since early January and the third-highest inflow in the past year. Confirming the shift in sentiment, the American Association of Individual Investors reports only 37.1% of respondents to its latest sentiment survey were bearish, the lowest since early January. Finally, the 20-day put/call ratio was remarkably low at .804 on Friday. When investors are bullish and companies are bearish, we will place our bets with companies every time.

The Tactical Environment for Equity Reits
Kevin Means, portfolio manager of the RidgeWorth Real Estate 130/30 Fund

Absolute Value
As of February 28, 2009, the dividend yield of the FTSE NAREIT Equity REITs Index had reached 10.08%, the highest yield on the index since the 1993 dawn of the modern REIT era. Although the dollar amount of the weighted dividend has declined by 23% during the past six months as a number of equity REITs have reduced or eliminated their dividends (or converted to paying stock dividends instead of cash), the price of the index has declined by a whopping 61%! Even assuming no growth in the dividend over time (versus a typical long-term growth rate of about 2%), and even assuming no recovery in the market prices of REITs, the current investor can expect a return of about 10% unless further dividend cuts are ahead. Thus, this appears to be an historically attractive entry point.

Relative Value
Since the beginning of the modern REIT era in 1993, equity REITs (as benchmarked by the FTSE NAREIT Equity REITs Index) have typically sported a dividend yield roughly equivalent to the yield on the Merrill Lynch BBB/A 10-15 Year Corporate Bond Index. (Most REITs, if they are rated, are rated BBB/A.) Currently, the REIT index dividend yield is 2.15% higher than the yield on this bond index, which is the highest spread over the bond index since the 1993 dawn of the modern REIT era.