AND THAT’S THE WEEK THAT WAS…
For the Week Ended January 18, 2013
Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (12/31/12) |
Previous Week (01/11/13) |
Current Week (01/18/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
13,104.14 |
13,488.43 |
13,649.70 |
4.16% |
|
NASDAQ |
3,019.51 |
3,019.51 |
3,125.63 |
3,134.71 |
3.82% |
|
S&P 500 |
1,426.19 |
1,426.19 |
1,472.05 |
1,485.98 |
4.19% |
|
Russell 2000 |
849.35 |
849.35 |
880.77 |
892.80 |
5.12% |
|
Global Dow |
1,995.96 |
1,995.96 |
2,075.84 |
2,087.80 |
4.60% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.76% |
1.88% |
1.84% |
8 bps |
Though the “fiscal cliff” seemingly has taken a backseat to gun control these day, politicos continue to bicker over the ramification of a (lack of) deficit-related action. Prez O spoke of the increased prospects for the “R” word (recession) and predicted that markets would go “haywire” if Congress allowed the gov to be shut down over the debt ceiling. Speaker Boehner agreed, but added that the outrageous government spending (apparently solely a Dem problem) carries major “consequences” as well. Fitch Ratings threatened a treasury credit downgrade if the budget negotiations yield no progress, while Treasury Secretary Geithner predicted that the government will not be able to pay its bills around mid-February unless the ceiling is raised. (Retirement can’t come soon enough, huh Timmy?) By week’s end, Republicans proposed temporary measures to lift the debt limit in return for a significant budget deal in three months. If no deal is passed, the politicos must forgo their pay (not that they deserve it).
Earnings season plugged along and analysts now expect EPS of S&P 500 companies to increase by 1.9% over quarter 1 2012, a one percent drop from prior projections. Financials took center stage this week as JP Morgan Chase’s results surged on solid revenue, though the backlash from the “White Whale” fiasco cost CEO Dimon about $11 million in compensation. Goldman Sachs also revealed better-than-expected profits on strong underwriting activity. Bank of America continued dealing with fallout of the financial debacle and billion dollar charges stemming from industry-wide foreclosure “challenges” and a major settlement with Fannie Mae. Citigroup disappointed investors as its consumer biz hindered revenue at the firm. Elsewhere, Intel struggled on lower PC demand and a slowdown in emerging market activity, though conglomerate GE reaped the benefits of increasing demand from China.
In other corporate news, UPS is no longer pursuing its $6.9 billion acquisition of TNT Express because of Euro regulatory issues. Dell may be looking to go the private route as several buyout firms are in pursuit. Apple reduced its orders of iPhone 5 component parts due to slower-than-expected sales. Boeing ’s Dreamliner appears to be more of a nightmare for now as the company suffered a major hit in the aftermath of an emergency landing in Japan, another in a series of significant technical setbacks.
Crude jumped to over $95/barrel, the highest level in four months on a surprising drop in inventories, the Algerian hostage crisis, and solid economic news. Likewise, stocks moved higher as favorable retail and housing data brought newfound optimism (though the “R” word worries will remain until a true budget deal can be reached). Some analysts point to the “Dow Theory” as proof that equities will continue their upward trend. The observation details a correlation between transportation companies and the broader markets. When the Dow Transports and the Dow Jones Industrials hit new highs together, the trend for the overall stock market is higher as well. This week, the Transportation index pushed to a record close and the Industrials hit a new five-year high, setting the stage for more potentially upward movements in other key indexes (at least until the politico’s ongoing dispute ruins the party for everyone).
Economic Calendar
|
Date |
Release |
Comments |
|
January 15 |
Retail Sales (12/12) |
Better than expected increase |
|
PPI (12/12) |
Declined due to lower food and energy costs |
|
|
January 16 |
CPI (12/12) |
Unchanged in December |
|
Industrial Production (12/12) |
Highest level since mid-2008 |
|
|
Fed Beige Book |
Reported "modest" or "moderate" growth |
|
|
January 17 |
Jobless Claims (01/12/13) |
Lowest weekly claims rates since Jan. 19, 2008 |
|
Housing Starts (12/12) |
Highest level since July 2008 |
|
|
The Week Ahead |
||
|
January 22 |
Existing Home Sales (12/12) |
|
|
January 24 |
Jobless Claims (01/19/13) |
|
|
Leading Eco. Indicators (12/12) |
||
|
January 25 |
New Home Sales (12/12) |
A hectic week on the economic calendar brought generally positive vibes to analysts and investors. Housing continued to emerge from its long-standing hibernation as new construction soared to the highest level since July 2008 and housing starts increased by almost 37% in 2012 from the prior year. Industrial production also rose to its highest level since mid-2008, though the Fed’s manufacturing reports from both the Empire State (New York) and mid-Atlantic states showed sector contraction in the regions. The holiday season proved better than many had predicted as retail sales jumped by 0.5% in December with consumers spending more on cars, furniture, and dining. Some eternal pessimists, however, believe the favorable trend will soon come to an end as higher payroll (and income) taxes hit many consumers in their wallets. More favorable signs emerged from labor as the weekly unemployment claims number fell to its lowest rate since early 2008 and even the less volatile four-week moving average depicted a sizable decline. Inflation remains on the backburner (for now) as neither PPI (wholesale) nor CPI (retailed) generated any reason for concern.
The World Bank downwardly revised its projections for global growth in 2013 (to 2.4% from 3.0%), stating that the budget conflicts in Congress pose a greater threat than even the ongoing euro-zone crises. Germany’s economy contracted in late 2012 as it suffers from weakness (recessions) in some of its EU trading partners. Fortunately, China’s activity appears to be accelerating as its GDP rebounded by 7.9% last quarter, which bodes well for the superpower resuming its leadership role in the global economy.
The Fed’s Beige Book depicted all 12 districts as expanding at “modest” or “moderate” paces with continued improvements in housing and growth in consumer spending. Labor remained little changed as biz were concerned about the “fiscal cliff” and Europe’s never-ending crises and many were hesitant to enhance their hiring. Effects from Superstorm Sandy proved to be short-lived as activity in New York and Philadelphia rebounded from the initial aftermath. Fedspeak was plentiful this week as various policymakers stated their cases on continued stimuli. Dr. B. pointed to the low mortgage rates and improvements in housing as proof that the bond buying program has been successful; San Francisco Prez Williams believes the stimulus will last “well into the second half of 2013.” Boston Fed Prez Rosengren would like to see the unemployment rate decline at least another half-a-percent before cutting back on the program, while Minneapolis Fed Prez Kacherlakota would prefer a considerably lower 5.5% jobless rate.
On the Horizon… Politicos remain at odds over gun issues, but hopefully some will see the light regarding the budget and perhaps even approve debt ceiling measures (at least temporarily). Housing numbers highlight the calendar as the once dormant sector continues to lead the way to economic growth. Procter & Gamble and Starbucks take their turns at the earnings podiums as investors get another glimpse at consumer activity of the past few months and try to project how recent tax changes may impact future discretionary spending. As goes January, so goes the year…so far so good.
© Brounes & Associates
