Feb 20, 201202:02 PMBlog: Alaska's Eye on Wall Street
Week in Review, Feb. 20
Stocks rose last week, marking the 6th week of advances in the past 7 weeks. The S&P 500 returned +1.5% for the week and is now up +8.2% YTD. Bonds were mostly flat, with the 10 year Treasury yield closing at 2.00% on Friday. International stocks also did well last week - Japan's Nikkei was up +4.9%, Hong Kong shares increased +3.4%, and European stocks rose +1.9%.
While large cap stocks are off to a good start for the year as evidenced by the performance of the S&P 500, other U.S. equity indices have done even better. The tech heavy NASDAQ Composite index has been on an absolute tear as of late and is up +13.3% YTD. The index has surpassed its highs made in 2007 and is currently at 2,952 - a level last seen in late 2000 as the tech bubble burst. Despite having over 3,000 members the index is dominated largely by the major tech companies (Apple alone accounts for roughly 10% of the index). While calls of a new tech bubble have begun, they may still be a bit premature as the index is still far from its all-time high of 5,048 reached in March of 2000.
While it is somewhat hard to believe, it appears the dirty word of "compromise" was spoken in Washington, and Congress actually managed to pass "bi-partisan" legislation last week in the form of extended payroll tax cuts. Democrats and Republicans voted together to extended the current payroll tax structure through the end of the year. This should provide the average working family with roughly an additional $1,000 in take home pay. Apparently both parties agree that raising taxes in an election year is not a good idea. Legislators even finished with time to spare, as the current extension ran through February.
Continuing the trend, economic data from last week was fairly upbeat. The monthly index of leading indicators was up for the fourth consecutive time. Inflation ticked up, but analysts expected this and forecast a moderation of inflation going forward. Industrial production was fairly flat, and the housing market showed it at least still has a pulse in the form of new home construction.
The multi-year Greek drama continues to play out in Europe. The Greek economy is falling into a depression as it struggles with austerity and unemployment above 20%. While terms are still up in the air it appears more aid will be given and some sort of bond exchange will occur. Whether this "restructuring" is considered an all-out default is to be determined. Crunch time for the Greeks is about a month away, as $15 billion euros in debt comes due on March 20.
Economic data for this coming week is fairly light. Look for existing and new home sales and consumer sentiment. The Treasury will also auction 2, 5, and 7 year notes.
Monday is Presidents' Day and the equity/bond markets and the banks will be closed. The third Monday in February is a federal holiday officially known as "Washington's Birthday" in honor of our first president. George Washington's actual birthday is on February 22, and the holiday is intended to celebrate not only Washington, but all subsequent Presidents of the United States. Since 1862 Washington's farewell address has been read on the floor of the Senate to commemorate the holiday - you can read the address here.
Nicholas Case
Investment Analyst
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