An ugly win, but a win nonetheless

Market observations for the week of May 10 to May 15, 2010

Claymore Investments, Inc. 18 May, 2010 | 4:33AM

The major market indices finished the week with moderate gains. Trading was volatile as a snapback rally early in the week was pared by sharp declines on Thursday and Friday. We believe the pullback late in the week reflected buyer's fatigue and concerns about potential headwinds to the global economic recovery.

The market is likely to enter into a period of price discovery over the next few weeks as investors digest recent events and try to gauge what is currently priced in the markets and what is likely to come to fruition. While a choppy, sideways trading pattern may play out in the near-term, the favourable macro fundamentals (improving economy, attractive valuation, robust earnings growth) in the United States, as well as bullish intermediate technicals, should continue to set the stage for additional market gains over the medium term.

Fighting debt with debt? Global stock markets rallied strongly in the early part of the week in reaction to an almost $1-trillion emergency aid package geared toward the sovereign debt crisis in Europe. The rescue package was much larger than most expected and was structured to prevent the crisis from becoming a full-fledged credit market contagion. While the package was applauded by the global markets, the question remains whether Greece and the other heavily indebted European countries will have the fortitude to follow through with the tough austerity measures (i.e. tax increases, wage cuts, etc.) that are being imposed. In addition, the aid package is basically being structured as a lending facility. Therefore, one has to wonder whether lending money to already over-borrowed countries will fix the problems or is akin to giving a junkie the keys to a pharmacy.

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Claymore Investments, Inc.

Claymore Investments, Inc.  

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