By Rick Glaze
Stocks ended the week on a quiet note Friday, capping a week of robust gains. The Nasdaq Composite had its strongest week in over a year posting a 3.8 percent gain, while the small cap S&P 600 moved ahead by 3.5 percent. The large cap S&P 500 was up four out of five days last week. More importantly, third quarter earnings as reported by 85 percent of the companies are averaging about 15 percent growth over last year, and fourth quarter estimates are still in the midteens. Trading volume was bullish, with a pickup on advancing days and an easing on declining days.
As I have mentioned in this column before, higher volume can confirm a market rally. Productivity statistics were up, indicating that businesses can produce more goods and services without increasing head counts. Meanwhile, 56,000 new jobs were created in October. Bond yields trended slightly higher and oil and gas retreated to pre-hurricane levels.
Remember when the tax law changed and the deductibility of interest on expensive cars was reduced? The so-called luxury car market was up in arms. Claims that the bottom would fall out of that market were rampant. I did an informal survey and the best I could tell there are still plenty of luxury cars in Silicon Valley. Hysteria gave way to reality.
When President Bush’s panel on tax reform published its report, it caught a few people off-guard, which has resulted in feverish responses. The tax code is a compendium of 60 years of mind-boggling complexity that must be reformed, but constituencies do get entrenched. Realtors point out that reducing the deductibility of home interest would negatively affect homebuyers. While this may be the case, there will likely be offsets to mitigate the damage. One problem with a national tax policy is that one size does not fit all. For example, higher housing costs in California require larger loan amounts that would seem exorbitant when compared to the averages.
Let’s hope there is enough will in Washington to make meaningful reform and simplify the system.
Rick Glaze is the president of Glaze Capital Management of Los Altos and a registered representative of and offers securities through First Allied Securities Inc.
