Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (12/31/12) |
Previous Week (03/08/13) |
Current Week (03/15/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
13,104.14 |
14,397.07 |
14,514.11 |
10.76% |
|
NASDAQ |
3,019.51 |
3,019.51 |
3,244.37 |
3,249.07 |
7.60% |
|
S&P 500 |
1,426.19 |
1,426.19 |
1,551.18 |
1,560.70 |
9.43% |
|
Russell 2000 |
849.35 |
849.35 |
942.50 |
952.48 |
12.14% |
|
Global Dow |
1,995.96 |
1,995.96 |
2,127.57 |
2,143.58 |
7.40% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.76% |
2.06% |
2.00% |
24 bps |
At least they’re talking (if bickering and bad-mouthing count as talking). Prez O continued to reach out to “friendly” Republicans to pitch his budget plan with hopes that a Democratically-controlled Senate remains the best starting point to gain momentum in Congress. Such tactics were instrumental in passing the year-end “kick-the-can down-the-road” budget deal that turned into sequester on March 1. Some fear that Obama’s participation in the negotiations actually hinders the Democrats cause as he is seen as such an unpopular, polarizing figure these days and many Republicans will object to any deal that seems to imply agreement with the President. With Dems calling for about $1 trillion in new revenue (buzz for taxes), few think House Republicans will move anywhere close to such a plan. For now, the Paul Ryan “read my lips” bill calls for no new taxes other than those that took effect in January and includes major overhauls to Medicare and Medicaid. In addition to taxes, health care reform will remain another key stumbling block for compromise as Republicans look to repeal what they consider an incredibly expensive Obama-care, while Democrats claim it reduces the deficit over time. (Perhaps some high school math teacher can help explain the differences in the contrasting health care calculations.)
In corporate news, Wal-Mart’s CFO suggested the retail behemoth has yet to realize any real decline in sales as a result of the higher payroll taxes. Some analysts believed that discounters would suffer most as their targeted shoppers were forced to tighten their pocketbooks as their gross paychecks dropped at the beginning of the year. So far, that pessimistic scenario has yet to materialize and the consumer is “alive and well.” A Federal Reserve report raised questions about the capital plans of both JP Morgan and Goldman Sachs and their abilities to estimate losses brought about from an economic downturn. The concerns could hinder (postpone) plans for future company dividends and/or share buybacks. Dell remained atop the transaction headlines as a one-time seemingly simple plan to take the PC “dinosaur” private continued to bring disagreement from major shareholders and now Carl (Gekko) Icahn and Blackrock Group both have gained approval to access the company’s books. Hiding something from your investors, Michael? (Apparently, greed, for lack of a better word, is good.)
The Dow Jones continued its record-setting ways and pushed the number of consecutive winning sessions to 10, the longest streak in 16 years, while the S&P 500 played follow-the-leader on its way close (but not quite) to an all-time high last set in October 2007. With a fairly light economic calendar, few investors wanted to bet against the friendly trend in light of the favorable signs from the consumer. The Dow’s streak ended with late-week profit-taking on Friday. Despite higher crude inventories this year, oil prices rose in lockstep with stocks as traders hoped the (perceived) strength in the economy and the euphoria from higher equity values would translate into increased energy demand. Naysayers point to sequester and the automatic spending cuts that some believe will take a sizable bite out of the recovery; others look to the Fed for signs that officials will promote a policy shift that may slow the economy as well. For now, however, the ayes have it (unless you’re talking about a budget deal).
Economic Calendar
|
Date |
Release |
Comments |
|
March 13 |
Retail Sales (02/13) |
Biggest rise since September |
|
March 14 |
PPI (02/13) |
Tame inflation despite large rise in gasoline prices |
|
Jobless Claims (03/09/13) |
4-week average at lowest level since March 2008 |
|
|
March 15 |
CPI (02/13) |
Core data met expectations |
|
Industrial Production (02/13) |
Climbed more than expected |
|
|
The Week Ahead |
||
|
March 19 |
Housing Starts (02/13) |
|
|
March 20 |
Fed Policy Meeting Statement |
|
|
March 21 |
Jobless Claims (03/16/13) |
|
|
Existing Home Sales (02/13) |
||
|
Leading Indicators (02/13) |
While the domestic economy appears healthier than many of the US’s global trading partners (at least those in Europe), the dollar has begun a steady climb that has some analysts concerned about longer-term repercussions. While a strong dollar reinforces its role as the stalwart among the world’s currencies, it could ultimately threaten corporate earnings of multinational corporations whose overseas profits would be diminished when translated into US terms. Additionally, manufacturers could find that American-made goods and services may become less competitive (more expensive) in an environment in which foreign activity is already slow due to the euro-zone’s ongoing economic challenges.
Turning to the economy, retail sales showed surprising strength in February, the fourth straight gain and the largest since September 2012. However, a lower consumer confidence index raised some concerns late in the week. News from the labor front remains positive as jobless claims unexpectedly declined again and the four-week moving average fell to its lowest level since March 2008. Some analysts consider small biz to be the life-blood of the economy and the recent optimism index released by the National Federation of Independent Business exceeded expectations in February. Though inflation reared its ugly head a bit last month, most of the rise was due to higher gasoline prices, and the less volatile core (ex food and energy) data revealed few pressures. Manufacturing got a lift from better-than-expected industrial production on strong auto and auto part output.
The news was less favorable overseas. The euro-zone’s employment rate over the final quarter of 2012 dropped to the lowest level in seven years and its manufacturing sector received more bad news when industrial production fell more than expected in January. While the German Economy Minister claimed the country is on “the verge of recovery,” many of the neighboring regions continue to suffer through sizable challenges. Fitch dropped its credit rating on Italy to BBB+ in the aftermath of its recent election and the political uncertainties that currently exist. Italy’s GDP contracted by 0.9% last quarter and a recent bond auction did not proceed very smoothly. Meanwhile, China’s recent retail sales and industrial production numbers disappointed and analysts are now concerned about the high inflation readings and how the government plans to respond.
On the Horizon… The Fed gets together next week and bond buying will be high on its agenda. With solid data from labor, some policymakers may push to begin shifting policy and perhaps limit the bond purchases in the coming months. Thus far, Bernanke seemed resistant to such a move and the uncertainty from sequester and the potential economic consequences from the planned budget cuts will certainly throw a new wrench into any potential monetary moves. Those in favor of current policies have pointed to the sluggish labor market as reason to keep rates low and the stimulus in place. As signs of a stronger jobs market emerges, they may be forced to consider the potential negative implications of inflation and excessive risk-taking. The statement that follows the Fed’s policy meeting will be dissected more than usual this time around (certainly more than the grandstanding politico speeches regarding the budget).
© Brounes & Associates
