January 19th, 2011 10:05 AM by Mel Samick
Last week, investors were in a positive mood after better-than-expected economic indicators and fourth-quarter earnings were released. Reduced debt default fears from European countries provided an additional boost to the economic outlook. Even the Fed's Beige Book (report card of regional economic conditions) reported that the economy expanded moderately between November and December with major markets like manufacturing and consumer spending witnessing moderate growth. However, the troubled housing market and the soft labor market are still acting like market-draggers. Although the housing market saw some easing in mortgage rates last week, the Conforming Fixed 30-year rate leveled out at around 4.68 percent, while the Conforming Fixed 15-year rate finished the week at around 4.05 percent. Standard 5/1 ARM rates were hovering around 3.23 percent.
For the week, all major indices ended up, gaining around 1.5 percent. By week's end, the S&P closed at 1,271 while the Dow ended the trading week at 11,674. Except for the telecom sector, every sector posted gains while Financials lead the market by +3.2 percent followed by Energy at +3.3 percent. Fourth-quarter earnings from Alcoa, JPMorgan Chase and Intel beat market expectations and gave an extra boost to investors' hopes. Major economic indicators like Industrial Production ticked up in the month of December and reported a sixth straight month of improvement. The holiday season acted as a catalyst in economic growth as Retail Sales were up slightly in December.
Growth in sales has subsided fears of deflation and current inflation is within comfortable limits. The Producer Price Index jumped by 1.1 percent for December and 4.1 percent on a yearly basis. Core PPI, excluding food and energy jumped by only .2 percent on an annual basis. Along the same lines, the Consumer Price Index jumped by .5 percent and Core CPI was up by only .1 percent on an annualized basis. As the rate of economic growth and domestic demand rises, prices will also increase but the Fed does not seem to be that concerned with inflation at this time. Even with a price rise, the trade imbalance was essentially unchanged at $38.3 billion as exports and imports moved up by the same amount.
Information provided by NYCB Capital Markets