Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (12/31/12) |
Previous Week (02/22/13) |
Current Week (03/01/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
13,104.14 |
14,000.57 |
14,089.66 |
7.52% |
|
NASDAQ |
3,019.51 |
3,019.51 |
3,161.82 |
3,169.74 |
4.98% |
|
S&P 500 |
1,426.19 |
1,426.19 |
1,515.60 |
1,518.20 |
6.45% |
|
Russell 2000 |
849.35 |
849.35 |
916.15 |
914.73 |
7.70% |
|
Global Dow |
1,995.96 |
1,995.96 |
2,086.40 |
2,080.15 |
4.22% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.76% |
1.97% |
1.85% |
9 bps |
Despite the petty criticisms, bickering, complaints, threats, blame-placing, name-calling, etc., the calendar turned to March, sequester became reality, the budget cuts began in earnest, and the economy has yet to tumble (emphasis on the “yet”). Republicans blasted what they are calling Obama’s “public relations campaign” and the scare tactics he seemingly used to try to win public support. The White House bemoaned the “dumb, arbitrary” spending cuts and cited its partisan rivals’ inflexibility over new revenue (buzz word for taxes). A meeting of the Big 5 (Prez O and the two top leaders in the House and Senate from both parties) proved nothing more than a photo-op with no one in the mood to “say cheese.”
Both sides claimed to understand the ramifications on the economy and expressed willingness to proceed with a sustainable budget plan, if only the others would see the ills of their thinking (regarding taxes) and “compromise.” With defense spending on its way to the chopping block, regions that are reliant on such moneys (home to military bases, defense contractors, etc.) will be the hardest hit, while other parts of the country may question the reasoning behind the big fuss. White House economic advisor Gene Sperling thinks the cuts will be drastic and harmful in relatively short order. Layoffs may ensue; biz may hold off on spending/investment; consumers may stay away from the malls. He thinks the outrage will bring both sides back to the bargaining table soon (and hopefully for more than just another ugly photo-op).
In corporate news, retailers took their rightful place on the earnings podium as Macy’s and Gap were stellar performers, while JC Penney missed on both earnings and revenues. Home Depot benefited from the so-called housing boom and its management announced a share buyback program and increased dividend for good measure. Still, analysts remain most concerned with outlooks than past results and the ongoing budget standoff means plenty of uncertainties for the foreseeable future. Despite fears that higher payroll taxes would take a toll on spending, automakers recorded another solid February as GM (+7.2%), Ford (+9.3%), and Chrysler (+4.1%) all grew their sales. Banks reported profit growth of almost 40% in the 4th quarter from year ago levels, though JP Morgan Chase plans to reduce costs to the tune of $1 billion annually by slashing 17k jobs by the end of 2014.
Stocks kicked off the week on a sour note as the election in Italy brought renewed fears about Europe’s challenges and the “fiscal cliff” moved closer to fruition. However, after suffering its largest decline of the year, equities bounced back nicely on comments from Dr. Bernanke and a solid showing from the manufacturing sector as the Dow Jones jumped above the 14k mark and moved ever-so-closely to its all-time high. For now, investors seem to be overlooking the spending cuts and focusing on the more favorable signs from the economy. Companies continued to take advantage of the low rates as over $12.5 billion in new high-grade debt hit the market in one day. Oil plunged to just above $90/barrel, the lowest settlement of the year, on fears that sequester will lead to a weaker economy and, thus, diminished demand. And the politicos are still not talking…any signs of recession just yet, Mr. Prez?
Economic Calendar
|
Date |
Release |
Comments |
|
February 26 |
New Home Sales (01/13) |
Highest pace in 4 years |
|
Consumer Confidence (02/13) |
1st increase in 4 months |
|
|
February 27 |
Durable Goods Orders (01/13) |
Solid gain when exclude transportation orders |
|
February 28 |
Jobless Claims (02/23/13) |
Fell for 3 out of past 4 weeks |
|
GDP (4th quarter revised) |
Revised to show slight expansion |
|
|
March 1 |
Personal Income/Spending (01/13) |
Biggest drop in income in 20 years |
|
ISM – Manu (02/13) |
Highest level since June 2011 |
|
|
Construction Spending (01/13) |
First monthly decline since March 2012 |
|
|
The Week Ahead |
||
|
March 5 |
ISM – Services (02/13) |
|
|
March 6 |
Factory Orders (01/13) |
|
|
Fed Beige Book |
||
|
March 7 |
Jobless Claims (03/02/13) |
|
|
Consumer Credit (01/13) |
||
|
March 8 |
Nonfarm Payroll (02/13) |
|
|
Unemployment Rate (02/13) |
Despite all eyes being on sequester and the long-term effects of the automatic spending cuts, the economy continued to roll along with signs of solid growth. New homes sales skyrocketed by almost 30% in January to the highest pace in four years. Consumers seemingly overlooked the higher payroll taxes and budget uncertainties as confidence levels (as measure by the Conference Board ) jumped in February after three consecutive declines and another Thomson Reuters sentiment index also rose to its highest level since November. Manufacturing experienced its best showing since June 2011 as the ISM index remained comfortably in expansion territory. Jobless claims fell again for the third week out of the past four as some employers appear to be back in hiring mode. Though durable goods orders dropped on lower defense spending (get used to it), ex-transportation orders reflected solid biz activity.
Shifting abroad, China’s manufacturing sector took a step back last month as its purchasing managers index showed slight expansion, though some attributed the “weakness” to a lack of activity during the Lunar New Year. Some fear that the emerging market is beginning to suffer ill-effects from declining demand from certain developed economies in Europe. Voters took to the polls in Italy and the inconclusive results cast a giant dark cloud over the entire euro-zone. With no clear consensus victor in terms of party, the people have spoken out against the harsh austerity measures and analysts are growing more concerned that regional instability could threaten the already shaky financial markets and the overall euro-zone economy. Still, European Central Bank Prez Draghi again pledged to stay the course and continue with current policy designed to stabilize the region.
Meanwhile, Fed Prez Bernanke make his semi-annual trek to Congress and continued to defend the bond buying program as policy that has aided the domestic economy by keeping long-rates low. He acknowledged that the Fed may need to determine an exit strategy at some point in the not-so-distant future, though cautioned that rash actions could hinder economic growth. A few key policymakers supported a “tapering” strategy, one in which the bond buying continues, but slows over time as the economy is weaned off of the long-standing stimulus.
On the Horizon… Sequester…Sequester…Sequester. While some analysts may have hoped that the powers-that-be could find a way to compromise and end the game of “kick the can,” the actual results should have been expected. Though the economy will not fall off the cliff overnight, certain regions will begin to feel the pinch and many unfortunate workers will find their way onto the unemployment line. While no one wishes to see any “pain and suffering,” hopefully the politicos can put partisan ideologies aside and actually work for the best interests of the people. The February unemployment release gives insight into labor, but next month’s data will be far more telling, now that sequester has begun.
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
