Jan 23, 201209:41 AMBlog: Alaska's Eye on Wall Street
Week in Review, Jan. 23, 2012
The S&P 500 gained +1.5% to 1,315 last week and is up +4.6% YTD. Stocks throughout the world are on a tear so far this year. Chinese stocks are up +5.4%, Brazil +9.8%, European names (Stoxx 50) have gained +4.8%. U.S. bonds however have declined in price as yields jumped 15 bp on the 10 year Treasury last week to a 2.03% yield. Better U.S. economic news and less angst in Europe are causal factors.
Weekly unemployment claims were down again. Many believe they are not just the timeliest but the most reliable of economic indicators. Along with better housing data and industrial production (+0.5%), it points to an improving economy.
The Treasury auctioned $15 billion of 10 year TIPS bonds at a negative yield (-0.05%) for the first time. This was in the face of a 0.0% print on the December CPI and forecasts of a cooling of inflation to 2% over the first half of the year. Low inflation usually doesn't spur demand for inflation protected bonds!
Q4 corporate earnings have been mixed. So far only 50 of the S&P 500 companies have reported, however 2/3 are beating modest expectations.
Kodak filed for Chapter 11 bankruptcy. Chairman and CEO Antonio Perez said the 130-year-old company intends to reorganize and emerge "a lean, world-class, digital imaging and materials science company." Fuji wins. Fuji wins.
The World Bank cut its global growth forecast for 2012 to +2.5% from +3.6%. It expects the U.S. economy to expand at +2.2% this year while the euro area will contract -0.3%.
China's economy rose +8.9% in Q4 and was up +9.2% last year from +10.4% in 2010. Most analysts expect +8% to +8.5% growth this year. An overheated property market is a worry, but with inflation cooling policymakers have room to ease credit conditions.
Following on their cuts to several European sovereign debt ratings last week, S&P downgraded the rating of Europe's bailout fund - the European Financial Stability Facility - from AAA to AA+. Still, the Fund sold bonds last week at favorable levels.
The President's State of The Union address will be this Tuesday night. Otherwise the week will be quiet with respect to economic data - durable goods (+2.0%) and leading indicators (+0.7%) are out on Thursday and on Friday fourth quarter GDP is expected to come in at +3.0%.
The Federal Reserve meets this Tuesday and Wednesday where they will for the first time present projections for the benchmark fed funds rate. It will probably show a fed funds rate at zero at least through mid 2013.
This week the world's corporate elite will trudge through the snow and gather in Davos, Switzerland to contemplate global this and that.
Congress is back in session and yes, no man woman or child is safe! The next battle is over extension of the payroll tax cuts set to expire at the end of February.
Jeff Pantages, CFA
Chief Investment Officer
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