Market Matters…
|
Market/Index |
Year Close (2012) |
Qtr Close (03/31/13) |
Previous Week (04/05/13) |
Current Week (04/12/13) |
YTD Change |
|
Dow Jones Industrial |
13,104.14 |
14,578.54 |
14,565.25 |
14,865.06 |
13.44% |
|
NASDAQ |
3,019.51 |
3,267.52 |
3,203.86 |
3,294.95 |
9.12% |
|
S&P 500 |
1,426.19 |
1,569.19 |
1,553.28 |
1,588.85 |
11.41% |
|
Russell 2000 |
849.35 |
951.54 |
923.28 |
942.85 |
11.01% |
|
Global Dow |
1,995.96 |
2,110.73 |
2,077.76 |
2,144.69 |
7.45% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
|
10 yr Treasury (Yield) |
1.76% |
1.85% |
1.69% |
1.72% |
-4 bps |
What a difference a few days make (part 2…see last week’s commentary). After last week’s concerning labor releases, some investors were worried that the stock market rally may be coming to a quick close and we could be entering another down phase as had been experienced in each of the past few summers. After all, earning season was expected to be lackluster at best; the consumer was threatening hibernation in the aftermath of recent payroll tax hikes; and politicos were playing their typical blame game and making no progress on the never-ending budget “challenges.” Well, for the moment at least, the selloff now seems more reflective of profit-taking than major concerns about the economy and labor markets (though history has shown that such investor sentiment can change on a dime).
Alcoa kicked off earnings season on a favorable note as profits increased and its CEO remains “relatively optimistic” that demand growth will be solid and 2013 will prove stronger than 2012. Unfortunately, the results from two key financial powers, JP Morgan Chase and Wells Fargo, were less than stellar as both struggled with declining revenues on reduced mortgage lending activity and lower profit margins. As the season began, Thomson Reuters was predicting earnings growth of 1.6%, compared to 6.2% in the fourth quarter 2012. In transaction news, GE is expanding its oil and gas biz by acquiring Lufkin Industries for over $3 billion. Techs received some bad news as research firm IDC reported that PC shipments plunged almost 14% last quarter as demand for Microsoft ’s Windows 8 has yet to live up to expectations. Toyota, Honda and two other leading automakers announced a major recall (3 million cars) due to defective airbags, though the sector as whole remains one of the strongholds in the economy.
Obama put forward his budget for the fiscal year that included several components he hopes will appeal to his rivals. While he proposed ending “sequester” with spending increases in areas such as education and infrastructure, he also included cuts in entitlements such as social security, a feature that Republicans would be hard-pressed to oppose. Meanwhile, Paul Volcker, formerly of Federal Reserve fame, expressed his discontent in the progress (or lack thereof) in financial market reform as he claims “attitudes haven’t change” in over four years since Lehman Brothers sought bankruptcy protection.
Stocks moved into record territory during the week as investors welcomed the Alcoa announcement with hope that the season would not be as bad as feared (though the banks’ subsequent releases renewed those concerns). Both the Dow Jones and S&P 500 set new index highs before pulling back just a bit as the week came to a close. The Fed minutes implied that the stimulus would not be ending any time soon and the late-week labor data eased some of the negativity brought about from last week’s unemployment numbers. Oil prices fell on lower demand growth forecasts and hit levels not seen in a month, while gas prices also declined, a welcome trend heading into the summer vacation season. Expect equity market volatility to continue as many uncertainties remain and investors analyze and over-analyze each major (and minor) release and every comment by any and all powers-that-be (even the minor ones).
Economic Calendar
|
Date |
Release |
Comments |
|
April 10 |
Fed Policy Meeting Minutes |
Continued debate on “bond buying” |
|
April 11 |
Jobless Claims (04/06/13) |
1st decline in 4 weeks |
|
April 12 |
Retail Sales (03/13) |
Largest decline in nine months |
|
PPI (03/13) |
Falling cost of gasoline more than offset rising food prices |
|
|
The Week Ahead |
||
|
April 16 |
CPI (03/13) |
|
|
Housing Starts (03/13) |
||
|
Industrial Production (03/13) |
||
|
April 17 |
Fed Beige Book |
|
|
April 18 |
Jobless Claims (04/13/13) |
|
|
Leading Eco. Indicators (03/13) |
Last week, labor dominated the (negative) headlines; this week retail stole the show (though the impact on the equity market was far different). Same-store sales as posted by Thomson-Reuters disappointed for the second straight month as the 11 retailers that still report these days depicted the lowest level of growth since August 2009. Some blamed the cold weather that has kept summer merchandise from flying off the shelves; others believe the payroll tax increase and other economic uncertainties are taking tolls on the consumer. Additionally, sentiment dropped at the end of last month and March retail sales fell by the largest amount in nine months, though much of the drop can be attributed to lower gasoline prices.
Back to the labor front, the news du jour was actually better this week. Jobless claims plunged by 42k workers after three straight weeks of increases. Analysts point out that Easter often causes volatility in these numbers as spring breaks lead bus drivers and other related workers to file claims on a temporary basis. The Labor Department also released a report known as JOLTS (Job Openings and Labor Turnover Survey) that showed employers are posting for job openings at the highest pace since the end of the recession in June 2009. Finally, a survey released by the Snagajob website revealed that more companies are planning to add seasonal employees this summer than last. In other economic news, PPI fell in March on lower gas prices and even though some food prices (fruits and veggies) increased, many believed that trend to be short-term and reflective of poor weather conditions.
The minutes of the latest Fed policy meeting (that was somehow released early on some soon-to-be-investigated snafu) revealed continued debate about the longevity of the bond buying program, Still, most did not expect any action or tapering scenario until the second half of the year at the soonest. While policymakers acknowledge that the economy is performing better than many had expected, they remained concerned about the impact of sequester and the payroll tax hike. This week’s news from retail (and last week’s from labor) should prevent them from acting in haste to significantly alter the program.
In global economic news, the manufacturing sector may be on the mend in the euro-zone as industrial production rose more than expected in both Germany and France as well as for the region as whole. Italy welcomed a decent short-term debt auction as investors overlooked the political turmoil (at least for the short-term). China reported soaring imports last month as previous signs of an economic downturn may have been premature. Still, Fitch Ratings downgraded the country’s yuan-denominated debt because of concerns about the continued buildup in credit, though the move is not expected to have much of an effect on the global financial markets.
On the Horizon … Earnings season continues with two more financial behemoths, Bank of America and Citigroup, set to release reports with hopefully better results. Additionally, Intel provides additional guidance into the current status of technology (PC sales). The Fed’s Beige Book will give more insight into the policymakers’ views of the economy and the need for continued stimuli (bond buying). As tax season comes to a close (for most), perhaps consumers can look to put those hard-earned refunds to work for the betterment of the economy (or put in overtime to pay those tax bills).
© Brounes & Associates
