Mel's Blog

February 2, 2011 Market News

February 2nd, 2011 9:43 AM by Mel Samick

The Federal Reserve meeting took place on Tuesday and Wednesday of the previous week, concluding that slow growth of the economy still does not provide a substantial basis for unemployment reduction, which is the major macro-level concern at the present time. Therefore, the Fed meeting members made a unanimous decision to keep rates at the same near--zero level for an extended period of time and maintain the bond purchase program as previously instituted. The announcement was in line with market expectations, prompting little reaction from investors.

Employment related news was not bright this week. New unemployment claims jumped 51,000 to the level of 454,000 while expectations were set on 405,000. The phenomenon was explained by the delayed claims processing due to snowy weather in parts of the country. A total of 9.4 million people were claiming benefits under all unemployment programs. In the meantime, many state workers are looking to join the unemployed workforce soon. Squeezed by budgetary constraints, states propose not only salary freezes and cuts, but also significant staff count reductions. Texas is looking to cut 9,300 positions, Georgia - 14,000 and New York -10,000. Employment costs reported on Friday rose in the fourth-quarter of 2010, compared to the third- quarter's less than expected 0.4 percent. The low number further alleviated any inflationary concerns in relation to the labor cost component of prices.

Despite the employment situation, the American consumer does not seem to be too concerned. Consumer Confidence rose from the previously revised 53.3 to a 60.6 level, well above the expectations of 54.3. Consumer Sentiment maintains its strong showing at a 74.2 posting, an above-expectations increase over 72.7 levels recorded previously. The positive consumer mood extended its impact into housing markets as well. New Home Sales of 329,000 annualized rate, as compared to the previous level of 280,000, topped expectations. Pending Home Sales extended the momentum and grew 2% over the previous reading. A possible growth in sales was helped by decreasing house prices. In November, prices fell in nineteen of twenty major US cities included in the S&P Case Shiller Index.

GDP for the fourth-quarter of 2010 disappointed the markets. It grew at a 3.2 percent rate while the expectations were set at a 3.5 percent level. However, looking back at the 1.7 percent increase in the second quarter and 2.6 percent increase in the third, the result, providing a clear positive trend, may look more appealing. Despite the expected 1.5 percent increase, Durable Goods Orders plunged 2.5 after a 0.1 percent reduction in the prior month. Durable Goods Orders are a leading indicator, and so we are potentially looking towards an array of low growth lagging readings going forward.

Celebrating last year's success, many major companies of different sectors posted very nice results. Caterpillar's income for the last quarter of 2010 came out four times higher than the previous reading. They also hired 19,000 people during the past year, including 7,500 in the U.S.A. GE's quarterly income at the same time increased 52 percent from the year before. Ford missed expectations for the fourth-quarter of 2010, the first time after two years of better-than-expected results, but still stayed more profitable than in decades prior. Manufacturing constitutes 11.2 percent of the overall U.S. economic activity at the present time, down more than two-times from its 1953 peak of 28.3 percent. Amazon missed their expected profit target for the quarter, which may be a sign of overheated expectations rather than the company's underperformance. Samsung posted a 13 percent profit rise for the quarter. Microsoft's net income fell insignificantly, but still was better than expectations. Consumer staples giants Procter and Gamble and Colgate-Palmolive both posted disappointing profit figures that hint of a potential rise in prices for their respective goods. Overall earnings of many companies look good, especially in comparison with previously anemic periods, but forecasts are at least cautious.

Viva Dow! The famous Dow Jones Industrial Average broke through 12,000 more than once during the past week! The above 12K level has not been seen since June of 2008. By the end of the week, triumph was spoiled due to Egyptian unrest, sending oil prices up and forcing investors out of equities towards safer assets.

This week will be busy with the economic news releases:

·       Monday: Personal Income and Outlays, Chicago PMI;

·       Tuesday: Motor Vehicle Sales, ISM Manufacturing Index, Construction Spending

·       Wednesday: ADP Employment Report

·       Thursday: Jobless Claims; Productivity and Costs, Factory Orders, ISM Non-Manufacturing Index

·       Friday -- Employment Situation

The upcoming week is taking us into the shortest month of winter as days grow longer. On February the Second, prognosticator of prognosticators, Sir of Sirs Punxsutawney Phil will tell us how much more winter we shall expect. Have a week full of pleasant discoveries. Stay tuned.

                Mel

Information provided by NYCB Capital Markets

Posted in:General
Posted by Mel Samick on February 2nd, 2011 9:43 AM

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