Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (12/31/12) |
Previous Week (01/04/13) |
Current Week (01/11/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
13,104.14 |
13,435.21 |
13,488.43 |
2.93% |
|
NASDAQ |
3,019.51 |
3,019.51 |
3,101.66 |
3,125.63 |
3.51% |
|
S&P 500 |
1,426.19 |
1,426.19 |
1,466.47 |
1,472.05 |
3.22% |
|
Russell 2000 |
849.35 |
849.35 |
879.15 |
880.77 |
3.70% |
|
Global Dow |
1,995.96 |
1,995.96 |
2,051.22 |
2,075.84 |
4.00% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.76% |
1.92% |
1.88% |
12 bps |
With “fiscal cliff” and debt ceiling challenges now delayed for a few months, investors had a chance to revisit the major players and determine whether any compromise seemed likely. With John Boehner reelected to another term as Speaker, investors realize that he unfortunately has sworn “enemies” on both sides of the aisle. As Treasury Secretary (and Wall Street fav) Tim Geithner prepares to ride off into the sunset, Prez O is hoping to turn to White House Chief of Staff Jacob Lew to manage the helm at Treasury. Lew has played major budgetary roles in both the Clinton and Obama administrations, but he is known more as a Democratic loyalist with few strong contacts in the biz (Wall Street) world. Looks like that budget fight (and any semblance of compromise) may be getting a tad tougher.
In reality, investors seemed to put the budget matters on the backburner for a few days and focused on the much anticipated 4th quarter earnings season instead. While many corporations had been rolling along quite nicely with profit and revenue increases over the past few quarters, several issued warnings that the homestretch of the year may not prove to be as promising. Alcoa kicked off the season with a stronger-than-expected revenue increase on solid demand from China, but warned that the ongoing debt crisis could hinder overall economic growth. Wells Fargo also posted better-then-anticipated results, though the low rate environment is clearly taking its toll on certain segments. American Express announced major restructuring charges as the credit card giant plans to reduce its workforce by 5,400 jobs. In other jobs news, Morgan Stanley also will be cutting 1,600 employees in its institutional securities biz.
Sticking with financials, Bank of America tried to put the Countrywide fiasco to bed with an $11.6 billion settlement with Fannie Mae and also joined a contingent of major bankers to succumb to regulators’ charges about improper foreclosure procedures to the combined tune of $8.5 billion. Shifting to retail, Amazon.com received a nice endorsement from a key analyst in the form of a ratings upgrade, while Best Buy reported a decline in holiday sales, despite a decent showing domestically. On the transaction front, Ford chose to disburse excess cashflow by doubling its dividend, continuing a trend from 2012 in which S&P companies paid out a record $218.5 billion or a 17% increase from 2011.
Investors continued to pour moneys into risk assets as $18 billion flowed into stock funds and ETFs in the most recent week. Last year’s biggest week saw $11.4 billion in equity inflows so some investors must have been sitting on cash late in 2012 as the fiscal crisis played out. Still, stocks were mixed during the week as investors digested the early earnings news though the S&P did manage to set a new five year high. Fixed income securities were volatile as bond players tried to determine whether the current low yields had anywhere to go but up. Crude shot to 16-week highs on news that Saudi Arabia, the world’s largest exporter, had cut production in December due to diminished demand. While 2013 and 2014 are supposed to be better years (demand-wise) than last year, forecasts show that demand expectations remain below 2011 levels. So what do those forecasts predict for the Lew/Boehner negotiations?
Economic Calendar
|
Date |
Release |
Comments |
|
January 8 |
Consumer Credit (11/12) |
Increased for 4th straight month |
|
January 10 |
Jobless Claims (01/05/13) |
Continuing claims at lowest level since week of 7/12/2008 |
|
January 11 |
Balance of Trade (11/12) |
Surprising surge in imports due to smart phones |
|
The Week Ahead |
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|
January 15 |
Retail Sales (12/12) |
|
|
PPI (12/12) |
||
|
January 16 |
CPI (12/12) |
|
|
Industrial Production (12/12) |
||
|
Fed Beige Book |
||
|
January 17 |
Jobless Claims (01/12/13) |
|
|
Housing Starts (12/12) |
A light week on the domestic economic calendar gave investors time to focus on earnings reports. Despite the ongoing budgetary uncertainties, the National Association of Independent Business’ small-business optimism index grew last month by a larger-than-expected amount. Consumer credit increased for the fourth consecutive month, though the key credit card component was considered disappointing and much of the rise came from auto sales and student loans. Exports climbed in November, but not as much as imports (from smartphones) as a wider-than-expected trade deficit forced some economists to lower their outlooks for overall growth. Though initial jobless claims jumped slightly in the most recent weekly release, the continuing claims data (folks drawing benefits for over a week) fell to its lowest level since mid-July 2008, a positive sign for the labor market.
Unfortunately the labor news out of Europe confirmed that the challenging times there continue as the euro-zone’s unemployment rate climbed to a new high of 11.8% in November and 113k workers were added to the jobless rolls. Still, a ray of optimism emerged as retail sales jumped for the first time since July and a biz confidence index increased in December (though it continues to remain low by historical standards). In China, the large trade surplus reflected a double-digit increase in exports and indicated that the country’s economy may be growing faster than many were expecting. However, a harsh winter has renewed inflationary fears as food and energy prices look to be on the rise.
All eyes remain on the Fed as 2013 kicks into gear. Most watchers seem to like the new (and improved?) communications policy that ties future monetary decisions and interest rate moves to specific unemployment and inflation levels. However, others remain skeptical as the policymakers have not spelled out exactly how they plan to act once those thresholds are reached. (Must everyone know everything all the time?) The Fed also joined the debt ceiling debate as Richmond Bank Prez Lacker expressed concern about the direction of the economy if Congress doesn’t get its act together and make real progress on the budget front. Lacker fears that continued uncertainty could dampen growth in 2013 as corporations and consumers hold off on spending/investment moves much like they did last year. Meanwhile, the Fed turned into a profit center in 2012 as its earned almost $90 billion for the Treasury Department on some of the unconventional stimulus programs (that raised the ire of Congress when initially announced and implemented).
On the Horizon …Financials follow Wells Fargo lead as JP Morgan-Chase, Goldman Sachs, and Bank of America post earnings results. (How does that Fannie settlement affect the numbers?) Chip-giant Intel and conglomerate GE also join the parade as the two bellwethers provide a solid look into the overall economy. A busier week on the calendar brings news from retail, housing, and manufacturing, while the inflation releases most likely will not reflect the most recent increase in energy prices. The Fed Beige Book gives a look into the inner-thinkings of the policymakers. January always sets the tone for the equity market as many believe the initial month of the year (or even the initial days) dictates the direction for the full year…good news since the S&P 500 jumped 2.2% over the first trading five days.
The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance is not a guarantee of future performance.
© Brounes & Associates
