The Rally Continues…

First off, I thought I would share a little good news with you all. Farr, Miller & Washington, LLC ranked in the top 1% of all large-cap growth managers over the trailing 12-month period ended June 30, 2009, according to PSN Enterprises Database of large-cap managers. We are very proud to have achieved these investment results for our clients, and we are always looking for more clients to add to our ever-increasing rolls.

Now, on to some thoughts on the markets. This morning we received weekly initial jobless claims and continuing claims data. Both surprised to the upside, while figures for the prior week were revised higher as well. Below we are including an article from this morning’s Wall Street Journal. We are including this article because it sounds eerily similar to our email blast from last week, which pointed out that the market appears to be ignoring some troubling data of late.

We remain defensive, but rest assured we are participating in this rally. Whereas the rally to date has been driven largely by lower-quality companies, we expect investors to increasingly flock to financially solid companies with excellent management and strong prospects for market share gains into the future.

Market on Jobless Figures: What, Me Worry?

Aside from the worst job market in a generation, the economy is doing just fine.

So far, that has been good enough for the stock market, which has responded to signs of an economic bottom by rallying relentlessly, only occasionally and briefly worrying about the lack of spending power from millions of unemployed people.

Fresh evidence of this split could come with a slew of data Thursday morning. First, the Labor Department releases its weekly tally of new claims for state unemployment benefits. Economists think claims slipped to 550,000 from 558,000 a week earlier.

Claims are off sharply from their 26-year peak of 674,000 in late March. Such declines historically flag the end of recessions.

But claims at this level are still consistent with payroll declines of roughly 450,000 a month, estimates Joshua Shapiro, chief U.S. economist at MFR.

Investors also will watch the number of people drawing benefits, which has recently ebbed from a record high of more than 6.8 million and may have fallen below 6.2 million in the latest week, some economists estimate.

But many unemployed Americans are exhausting state benefits. The number drawing extended benefits from the federal government is still rising, hitting 2.8 million at last count.

“With nearly 9.3 million workers estimated to be receiving either regular or extended benefits,” Nomura Securities chief economist David Resler wrote, “strains on housing and the overall economy from the weak job market remain.”

Later Thursday, the market might get more encouraging numbers. The Philadelphia Fed will release its latest index of mid-Atlantic region factory activity, which could turn positive for the first time since September 2008.

And the Conference Board releases its latest index of leading economic indicators. Economists expect a fourth consecutive gain, further evidence of an economic bottom.

In past recessions, the job market has only recovered after manufacturing and the broader economy turned around. Partly for that reason, stocks often recover even as unemployment rises.

But there is yet little evidence that the still-anemic level of economic activity will soon be powerful enough to offset the effects of epic joblessness. Until it does, stock buyers should be wary.