Feb 6, 201212:20 PMBlog: Alaska's Eye on Wall Street
Week in Review
Okay, we want the Giants to win on Sunday. Remember if an original NFL team wins (Giants) stocks rise and if an old AFL team wins (Patriots) stocks fall. It has worked 79% of the time! Of course, the last time the Giants beat the Patriots in the Super Bowl was 2008. That didn't work out so well now did it?
Risk on. Stocks rose again last week, especially this Friday on really good employment data here in the US - 243,000 new jobs in January - unemployment rate down to 8.3%. The S&P 500 was up +2.2% for the week and +7.1% so far in 2012. It has surged +23% since its Oct 3, 2011 low. International large cap stocks (EAFE) gained +2.3% last week. Bonds sold off hard on Friday and the 10 year treasury ended the week yielding 1.92%, up 10bp for the day.
Despite record affordability (prices down and low mortgage rates) U.S. home prices declined last month and are down -3.7% YoY according to the Case-Shiller indices. We are still searching for a bottom. The problem appears to be high foreclosures and a big "shadow inventory."
Other economic news out last week was upbeat. Certainly the Friday employment data was a big positive. Otherwise decent ISM manufacturing and service sector data and factory orders indicated moderate expansion. Car sales were up (900,000 sold in the U.S. last month) and Chrysler posted its first annual profit in 7 years.
Bloomberg reports that Q4 S&P 500 earnings have been mixed. With 291 companies reporting, earnings have been up +3.6% (and +8.0% ex financials) while sales have gained +6.4% YoY. Profits are forecast to be up +9% this year.
At a meeting in Brussels most EU members (25 of 27) agreed to intensified surveillance of their budgets and to give Brussels power to enforce rules governing spending and borrowing. Only the U.K. and the Czech Republic said they won't participate. A treaty will be signed in early March.
Meanwhile the negotiations over the Greek debt "restructuring" drag on. Certain bondholders have been asked to accept a 70% haircut. Still, the ECB's three year term repos seem to be working and now "liquidity" is not a problem for most European banks. Solvency concerns over sovereign debt continue to fester across the euro zone.
Next week is a light week for data. Consumer confidence out on Friday is expected to be unchanged. The Treasury will auction 3, 10, and 30 year notes in the middle of the week (Tuesday-Thursday).
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