April Monthly Market Commentary

THE MONTH IN BRIEF
Offhand, when was the last month in which stocks didn’t advance? That would be October, and if it seems like a distant memory, credit the Federal Reserve, a decent Q1 earnings season, and a prevalent optimism that is hard to dismiss. The S&P 500 pushed higher during the month to settle at a new record close of 1,597.57 on April 30 – even after an abysmal March jobs report and some soft indicators at home and abroad. It was a bad month for commodities investors, with the big headline being gold’s lapse into a bear market on April 12. There was better news out of Europe, if not out of China. The real estate market continued to improve, the usual monthly volatility in the pace of home sales aside.^1,2,3

DOMESTIC ECONOMIC HEALTH
The most stunning news of April came early in the month, when the Labor Department said that the economy had generated but 88,000 new jobs in March. Sure, the jobless rate fell to 7.6%, but that was only because fewer Americans were looking for work – the labor force participation rate hit a 34-year low of 63.3%. Of course, the Labor Department often greatly revises these monthly hiring figures.⁴

Was manufacturing growth tapering off? The Institute for Supply Management’s manufacturing PMI came in at 50.7 in April, below the disappointing March reading of 51.3. ISM’s March service sector PMI declined to a still-encouraging 54.4 in April from its 56.0 March reading. Construction spending was down 0.7% in March, while overall durable goods orders lessened by 5.7%. Retail sales dipped 0.4% in March (the poorest month since last June). Given indicators like these, perhaps it wasn’t surprising that the federal government’s initial estimate of Q1 GDP was 2.5% - not the 3.0% or better growth that many economists had assumed they would see.^5,6,7,8
 

Consumer spending beat expectations with a 0.2% gain in March, with colder weather being the biggest factor: inflation-adjusted spending on utilities rose by the largest monthly amount since October 2001. Gas prices had fallen 4.4% in March, and inflation also lessened: the overall Consumer Price Index went south 0.2% and the overall Producer Price Index retreated 0.6%; the core PPI rose 0.2%, the core CPI 0.1%.^8,9,10

The Conference Board’s April consumer confidence poll soared to a 5-month peak of 68.1 in April from its 61.9 mark for March. The University of Michigan’s final April consumer sentiment index reached 76.4, surprising to the upside – economists polled by Briefing.com had expected a final April reading of 72.4.^1,7,11

GLOBAL ECONOMIC HEALTH
Would China’s apparent economic recovery amount to an illusion? Its official GDP reading for Q1 was 7.7%, down from 7.9% in Q4. Additionally, its HSBC PMI reading fell to 50.5 in April, a two-month low. Economists worried that its GDP would be closer to 7% than 8% in coming quarters. This disappointment provided another hit to the global commodities market, signaling reduced demand for gold and other resources in the PRC.¹²

While the banking crisis in Cyprus had cooled, eurozone unemployment had hit 12.1% in March, and Germany’s manufacturing PMI showed contraction in April (49.2). However, these last two developments seemed to increase the odds of the European Central Bank lowering its benchmark interest rate (which was at 0.75% as April ended). Ten-year bond yields in Italy and Spain were respectively at 4.1% and 4.3% as the month wrapped up, a far cry from the danger zone they entered last summer; the yield on Spain’s 10-year note fell for an eighth straight month. Italy’s political stalemate ended after two months, with new prime minister Enrico Letta receiving a parliamentary vote of confidence.^11,13,14,15

WORLD MARKETS
Many marquee indices fared well in April. The gainers included the Global Dow (+3.27%), the MSCI World Index (+2.90%), the MSCI Emerging Markets Index (+0.44%), the Nikkei 225 (+11.80%), the Sensex (+3.55%), the S&P/ASX 200 (+4.52%), the FTSE 100 (+0.29%), the CAC 40 (+3.36%), the DAX (+1.52%) and the Euro STOXX 50 (+0.99%). In the loss column for April, we find the TSX Composite (-2.30%), the IPC All-Share (-4.11%), the Bovespa (-0.78%) and the Shanghai Composite (-2.62%).i COmposite : the TSX Composite (-2.30%), the  gan'^2,16

COMMODITIES MARKETS
It wasn’t all bad in April: natural gas futures rose 9.0%, cocoa futures gained 9.1%, and wheat futures rose 6.3%. Now for the bad news: gold fell 7.8% last month to an April 30 COMEX close of just $1,474.00. Silver cratered 14.6% in April; copper fell 6.4%, platinum 4.3% and palladium 9.2%. Corn (-6.5%) and soybeans (-0.4%) both lost ground for a third consecutive month. NYMEX crude dipped 3.9% in April to end the month at $93.46 a barrel while RBOB gasoline futures dropped 9.8%. The U.S. Dollar Index lost 1.52% in April, settling at 81.72 on April 30.^11,17,18,19

REAL ESTATE
The pace of existing home sales was 10.3% better in March 2013 than it was in March 2012, according to the National Association of Realtors; the Census Bureau reported an 18.5% year-over-year improvement in the pace of new home purchases.  The February S&P/Case-Shiller Home Price Index showed its best overall 12-month gain since May 2006 (+9.3%). NAR also noted pending home sales at a 3-year peak in March, with the annual gain at 7.0%. Existing home sales did decline 0.6% in March; new home sales rose 1.5%.^{11,20,t in the sales pace at 18.5%.3,21}

What happened to mortgage rates in April? We saw notable declines. Freddie Mac’s March 28 Primary Mortgage Market Survey had the average interest rate for the 30-year FRM at 3.57%; it was at 2.76% for the 15-year FRM, 2.68% for the 5/1-year ARMs and 2.62% for the 1-year ARM. In the last April survey (April 25), the numbers were as follows: 30-year FRM, 3.40%; 15-year FRM, 2.61%; 5/1-year ARM, 2.58%; 1-year ARM, 2.62%.²²

LOOKING BACK…LOOKING FORWARD
The NASDAQ and S&P are now on 6-month winning streaks – the longest win streaks they have realized in the current bull market. The DJIA advanced for a fifth straight month in April. Here are the settlement prices from April 30: DJIA, 14,839.80; S&P, 1,597.57, NASDAQ, 3,328.79; Russell 2000, 947.46. (The RUT actually lost 0.43% for April.)^1,2

Hopefully, we won’t see domestic economic indicators falter in May and June, as was the case in 2011 and 2012. Overseas indicators (growth and manufacturing in China, the lingering recession in Europe) may not promise much, however. On a positive note, the Fed is still printing plenty of money and sticking to its accommodative monetary policy, which has boosted stocks of late more than any other factor. The undeniable psychological lift from the Fed’s open-ended easing hasn’t worn off, and investor morale is still high. The market doesn’t seem to be facing headwinds comparable to spring 2011 or spring 2012, though they certainly could arise. If the S&P does top 1,600 in the first half of May and close above 1,600 at the end of the month, you can’t say that Wall Street would be shocked. “Sell in May, go away?” Maybe not. Many investors still see more upside in this bull market.
 
UPCOMING ECONOMIC RELEASES: For the balance of May, here is the schedule of consequential announcements ... the Labor Department’s April jobs report and the ISM April service sector index (5/3), March wholesale inventories (5/9), April retail sales (5/13), April’s PPI and industrial production and the May NAHB housing market index (5/15), the April CPI plus the report on April housing starts and building permits (5/16), the Conference Board’s April index of Leading Economic Indicators and the University of Michigan’s preliminary May consumer sentiment survey (5/17), April existing home sales and the release of the May 1 Fed minutes (5/22), April new home sales and March’s FHFA housing price index (5/23), April durable goods orders (5/24), the March Case-Shiller home price index and the Conference Board’s May consumer confidence poll (5/28), the second federal government estimate of Q1 GDP and NAR’s pending home sales report for April (5/30), and May’s final University of Michigan consumer sentiment survey plus the April consumer spending report (5/31).
 
Best Regards,
 
Kevin Kroskey

This article adapted with permission from MarketingLibrary.net.

Citations.
1 - money.cnn.com/2013/04/30/investing/stocks-markets/ [4/30/13]
2 - online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [4/30/13]
3 - marketwatch.com/story/gold-prices-slip-with-weekly-declines-in-sight-2013-04-12 [4/12/13]   
4 - nytimes.com/2013/04/06/business/economy/us-adds-only-88000-jobs-jobless-rate-falls-to-7-6.html [4/5/13]
5 - cnbc.com/id/100694720 [5/1/13]
6 - ism.ws/ISMReport/NonMfgROB.cfm [4/3/13]
7 - briefing.com/investor/calendars/economic/2013/04/22-26 [4/26/13]
8 - nasdaq.com/article/us-stocks-slip-with-weak-consumer-sentiment-retail-data-20130412-00393#.UWhv1cpXqXk [4/12/13]
9 - reuters.com/article/2013/04/29/us-usa-economy-spending-idUSBRE93S0DV20130429 [4/29/13]
10 - 247wallst.com/2013/04/16/tame-march-cpi-supports-market-recovery/ [4/16/13]
11 - articles.marketwatch.com/2013-04-30/markets/38906878_1_oil-prices-barrels-interest-rate [4/30/13]
12 - cnbc.com/id/100662646 [4/22/13]
13 - iol.co.za/business/international/global-pmis-give-reasons-for-doubt-1.1505321 [4/24/13]
14 - bloomberg.com/news/2013-04-26/jpmorgan-sees-spanish-bond-gains-as-liquidity-fuels-rally-1-.html [4/26/13]
15 - cnn.com/2013/04/29/world/europe/italy-politics/ [4/29/13]
16 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [4/30/13]
17 - coinnews.net/2013/04/30/gold-and-silver-plummet-in-april-us-mint-bullion-coins-soar/ [4/30/13]
18 - bloomberg.com/news/2013-04-30/oil-falls-with-metals-aluminum-to-zinc-commodities-at-close.html [4/30/13]
19 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [5/1/13]
20 - csmonitor.com/Business/new-economy/2013/0423/New-home-sales-climb-1.5-percent-bolstering-housing-recovery [4/23/13]
21 - blogs.wsj.com/developments/2013/04/29/pending-home-sales-rose-in-march/ [4/29/13]
22 - freddiemac.com/pmms/ [5/1/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F30%2F12&x=0&y=0 [4/30/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
23 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=4%2F30%2F03&x=0&y=0 [4/30/13]
24 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/1/13]

2013 First Quarter Market Review

The investment markets offer no guarantees. Sometimes you may feel that you lay your money on the table and take your chances, having faith in the future.  In the first quarter, those who placed their bets that U.S. stocks would enhance their wealth and more practically speaking, those of us who stayed the course with our investment portfolios--were rewarded handsomely.

The Wilshire 5000--the broadest measure of U.S. stocks and bonds--rose 10.91% for the first quarter--more than half of the strong gains it made last year.  The comparable Russell 3000 index rose 11.07% through the end of March.

The other U.S. market sectors were also up strongly.  Large cap stocks, represented by the Wilshire U.S. Large Cap index, gained 10.65% in the first three months of the year.  The Russell 1000 large-cap index returned 10.96%, while the widely-quoted S&P 500 index of large company stocks gained 10.03% for the quarter and celebrated a new closing high of 1,569.19 on the last trading day of the quarter.  (Its all-time high was an intraday peak of 1,576.09, set back in 2007.)

The Wilshire U.S. Mid-Cap index index was up a robust 13.51% through the end of March after gaining 16.25% all of last year.  The Russell midcap index was up 12.96% for the quarter.

Small company stocks , as measured by the Wilshire U.S. Small-Cap, gained 13.11% in the first quarter.  The Russell 2000 small-cap index was up 12.39% in the first three months of the year.  The technology-heavy Nasdaq Composite Index was up 8.21% for the quarter and was depressed from Apple’s poor performance.

There was remarkable consistency across the industry sectors that make up the S&P 500.  Energy stocks rose 9.57%, materials were up 4.17%, industrials gained 10.08% for the quarter, consumer discretionary stocks rose 11.76%, consumer staples were up 13.77%, health care companies rose an aggregate 15.22%, financials gained 10.92%, utilities were up 11.84%, and even telecom services and information technology companies gained value, up 8.20% and 4.21% respectively.

When you look at global returns, it becomes clear that U.S. stocks delivered standout performance compared with the rest of the world.  The broad-based EAFE index of larger companies in developed economies rose 4.38% in dollar terms during the first quarter of the year.  The stocks across the Eurozone economies eked out a 0.63% gain for the quarter, reflecting continued uncertainty over whether Spain and/or Italy will require restructuring help on their government bonds.  Meanwhile, the Far East economies rose 9.18% in the first three months of the year.  In the only truly negative investment news, the EAFE Emerging Markets index of lesser-developed economies fell 1.92% for the quarter.

Looking over the other investment categories, real estate investments, as measured by the Wilshire REIT index posted a 7.43% gain for the quarter.

Investors who retreated to the safest bond categories deserve our sympathy, especially if they are using the coupons for retirement income.  Treasury bonds continue to post near-record low yields.  Today, if you lend the U.S. government money by purchasing a 2-year Treasury bond, your coupon rate is 0.24% a year; lend them a hundred dollars and you get back less than a quarter every 12 months.  Five-year yields are still below 1% (0.76%), and 10-year (1.85%/year) and 30-year (3.10%) T-bonds are not in danger of enriching their purchasers.  Muni bonds are sporting aggregate yields of 0.24% (1-year), 0.36% (2-year), 0.92% (5-year) and 1.96% (10-year). 

It's hard to believe that the U.S. and global economies are still suffering a hangover from the Great Recession, but the fact that the Federal Reserve Board is keeping interest rates artificially low, coupled with still-high unemployment, makes the case.  So, too, does unusually slow and bouncy economic growth; the U.S. economy, measured by the Gross Domestic Product, rose at a 0.4% annual rate in last year's fourth quarter, after a 3.1% gain in the previous three months.

However, there have been some optimistic signs.  Consumer spending, which accounts for roughly 70% of the U.S. economy, rose in February by the highest rate in five months, according to the Commerce Department.  Although the gain was still a modest 0.7%, the fact that people were spending more surprised many economists, who expected that the two percentage point increase in the payroll tax would cause Americans to feel poorer when they received their paychecks. 

Rising home values and wage gains across the economy have made it easier for households to repair their finances.  Incomes were up 1.1% in February and the overall U.S. savings rate managed to climb from 2.2% to 2.6% despite the increased spending and higher taxes.  Home property values, measured by the S&P/Case-Shiller Index, rose 8.1% over the past year, the biggest year-to-year gain since 2006.  Inflation is still low; the core measure which excludes food and fuel costs rose 0.1% from the prior month, in line with the 1.3% jump in the year since February 2012.  And unemployment is finally trending downward.  Employers added a net 355,000 workers in the first two months of the year.  Rhode Island, Vermont, California and New Jersey showed the biggest declines in unemployment rates.

Does this mean the economic recovery will accelerate, boosting stock prices to ever-higher levels?  Or are today's record stock prices a sign that the market is about to take a plunge?  Alas, only somebody with a working crystal ball can answer these questions.  What we DO know is that the most successful investors are fearful when everyone around them is greedy, and greedy when other investors are fearful.  For the past year, investors have been extremely nervous about U.S. deficits and the continuing debt crisis in Europe, yet stock market returns were excellent last year and unusually high in the first three months of this year.

All we can say for certain is that eventually the U.S. economy and the global markets will recover their mojo, and the Great Recession of 2008 will become a distant memory.  Historically, the markets have delivered positive returns about 70% of the time, which is much better odds than you are likely to find in a casino.

 

To Your Prosperity,

 

Kevin Kroskey

 

Adapted with permission from Bob Veres’ Inside Information.

 

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

Nasdaq index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP

International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html

Commodities index data: http://www.standardandpoors.com/indices/sp-gsci/en/us/?indexId=spgscirg--usd----sp------

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Aggregate corporate bond rates: http://finance.yahoo.com/bonds/composite_bond_rates

Economic data: http://www.bloomberg.com/news/2013-03-29/consumer-spending-in-u-s-increases-by-most-in-five-months.html

February Monthly Market Commentary

THE MONTH IN BRIEF
As February ended, a central question seemed to preoccupy Wall Street: “When will the Dow hit a new record high?” Nothing seemed to shake the Street’s upbeat mood – not the $85 billion in federal budget cuts slated for March 1, not the real estate bubble in China or political uncertainty in Italy, not the still-anemic Q4 GDP reading or the abrupt decline in personal incomes. All told, the data stream offered much to keep Wall Street in a good mood: impressive numbers from the housing sector, rebounding consumer sentiment, continuing expansion in the manufacturing and service sectors. So the Dow ended the month at 14,054.49, with bulls holding an unyielding belief that it could reach a new all-time high in March – and the index did just that.^1,2

DOMESTIC ECONOMIC HEALTH

February wrapped up with no agreement between Congress and the White House to postpone the sequestration – a 9% budget reduction for domestic programs, a 13% reduction for defense programs and a 2% cut in Medicare payments to physicians. March 27 presents a deadline for an appropriations bill to keep federal government operations sufficiently funded; the sequester cuts might be retroactively altered or undone as a result.³

Word came from the Commerce Department that consumer incomes fell 3.6% in January, a clear effect of higher payroll taxes. Yet consumer spending held up, rising 0.2% in that month. So did consumer sentiment: the University of Michigan’s monthly index was at 77.6 in February, and the Conference Board’s consumer confidence poll soared to 69.0 last month, even with the jobless rate at 7.9%.^4,5

If a rising stock market and general perception of an improving economy influenced the above numbers, tame inflation may have as well. In January, the Consumer Price Index was flat again. Retail prices had only increased 1.6% in 12 months. The troubling asterisk: core CPI (with food and energy prices factored out) rose 0.3% in January, a gain unmatched since May 2011. Also, retail sales increased just 0.1% in January compared to 0.5% in December. Wholesale inflation (as measured by the federal government’s Producer Price Index) was up 0.2% for January, and had increased 1.4% in the past year.^6,7,8

The world certainly pays attention to the Institute for Supply Management’s twin purchasing manager indices, and the latest readings on the economy from ISM have been quite positive. Its non-manufacturing index rose to 54.2 in February (the best mark since June 2011) while its service sector index read 56.0 last month, up from 55.2 in January for the highest reading in 12 months.^9,10

When the Federal Reserve’s January policy meeting minutes came out, they raised eyebrows – the Federal Open Market Committee had agreed to review its easy money policies in March, perhaps signaling an earlier-than-expected end to QE3.  The Bureau of Economic Analysis revised its estimate of Q4 GDP to +0.1%.^5,11

GLOBAL ECONOMIC HEALTH

By the end of the month, Wall Street had one eye on China and another on Italy. The PRC finally set some limits on its runaway real estate market, imposing a whopping 20% capital gains tax on real property sales, demanding higher mortgage rates and down payments and requiring cities to adopt yearly price easing targets for their housing markets. China’s manufacturing PMIs barely showed expansion in February: the official PRC PMI came in at 50.1, while the HSBC PMI read 50.4. The People’s Bank of China forecasts 3% inflation in 2013, compared to 2.6% in 2012; Bloomberg sees China’s economy growing 8.1% in 2013, up from the 13-year low of 7.8% recorded by its government last year. ^12,13

Italy’s national election produced a deadlock, raising fears that austerity measures stipulated by the European Central Bank could be rejected. Incumbent Prime Minister Mario Monti had been effectively challenged by Beppe Grillo, a populist fiercely opposed to the euro, and – of all people – disgraced former Prime Minister Silvio Berlusconi. (Italy’s jobless rate hit a 21-year peak of 11.7% in February.) On the upside, European Commission president José Manuel Barroso announced a federal surplus in Ireland and smaller payment imbalances for Italy, Portugal, Spain, and Greece. On the downside, the smaller deficits for those last four nations could be traced largely to a reduction in imports stemming from sinking demand.^4,14

WORLD MARKETS

Foreign benchmarks experienced much more turbulence than ours last month. A list of some losses: Hang Seng, -3.29%; NIFTY 50, -6.55%; MERVAL, -11.95%; Bovespa, -3.91%; Euro STOXX 50, -2.57%; CAC 40, -0.26%; DAX, -0.44%; MSCI World Index, -0.02%; MSCI Emerging Markets Index, -1.35%. The gains: S&P/ASX 200, +3.27%; KOSPI, +3.51%; TOPIX, +3.79%; FTSE 100, +1.34%; TSX Composite, +1.08%; S&P Asia 50, +0.52%.^1,15

COMMODITIES MARKETS

When was the last time gold racked up a five-month losing streak on the COMEX? You have to go back to 1997 to find another example of that, yet that was its dubious achievement in February. All key metals seemed to retreat last month: gold went 5.0%, silver -9.3%, copper -4.9%, platinum -5.5% and palladium -1.5%. Gold settled at just $1,572.30 on the COMEX on February 28. The perception of an improving economy also hurt oil, which ended February at $92.05 a barrel, its lowest NYMEX settlement price of the year. (It would head lower in early March). Natural gas futures, rose 4.4% in February. The U.S. Dollar Index rose 3.46% last month.^16,17,18

REAL ESTATE

Could a seller’s market be emerging? That possibility doesn’t seem so absurd given the latest round of indicators. Existing home sales had improved 0.4% in January even as the inventory of homes reached its lowest level April 2005, the National Association of Realtors noted; year-over-year, home prices were up 12.9%. NAR also found pending home sales rising 4.5% in January, and December’s S&P/Case-Shiller Home Price Index recorded a 6.8% 12-month increase. January also saw a 15.6% jump in new home sales, which had increased 28.9% in a year.^19,20,21,22

Between January 31 and February 28, home loan rates generally decreased. In that interval (according to Freddie Mac), the average interest rate on the 30-year FRM went from 3.53% to 3.51%. Average rates for the 15-year FRM went from 2.81% to 2.76%; the 5/1-year ARM, 2.70% to 2.61%; the 1-year ARM, 2.59% to 2.64%.²³

LOOKING BACK…LOOKING FORWARD

In addition to the gains logged by the big three in February, the Russell 2000 rose 1.00% to end the month at 911.11. The DJIA ended February at 14,054.49, the NASDAQ at 3,160.19 and the S&P 500 at 1,514.68.^1,24

While the Dow hit a new intraday high and closed at a record high on March 5, the underappreciated factoid is that the S&P 500 advanced in both January and February. As CNBC.com columnist Bob Pisani noted recently, that has happened 26 times since 1945. In each of those 26 years, the S&P finished up for the year. In 24 of those 26 years, its gain was 10% or better. In fact, the average annual ascent across those 26 years (including yield) was 24%. Historical data is simply a rear-view mirror and no guide to the future – but bulls are as optimistic as ever about this market. Could another deficit battle on Capitol Hill set stocks back? Will developments in Europe exert a drag? At this moment, little seems to shake the faith of Wall Street, which sees a clearly improving economy and a market climate with weaker headwinds.²⁸

UPCOMING ECONOMIC RELEASES: For the balance of March, the economic calendar plays out as follows ... January  factory orders and a new Fed Beige Book (3/6), the Labor Department’s February job report and January wholesale inventories (3/8), February retail sales and January business inventories (3/13), the February PPI (3/14), February’s CPI and industrial production and the University of Michigan’s preliminary March consumer sentiment survey (3/15), the March NAHB housing market index (3/18), February housing starts and building permits (3/19), a Fed policy announcement (3/20), February existing home sales, January’s FHFA housing price index and the Conference Board’s February Leading Economic Indicators index (3/21), February new home sales and durable goods orders, the Conference Board’s March consumer confidence poll and the January Case-Shiller home price index (3/26), February pending home sales (3/27), the final estimate of Q4 GDP (3/28), and February consumer spending and the final March University of Michigan consumer sentiment survey (3/29).

To Your Prosperity,

Kevin Kroskey

This article prepared in conjunction with Peter Montoya

Citations.

1 - www.bloomberg.com/markets/stocks/ [2/28/13]
2 - www.reuters.com/article/2013/03/01/us-usa-fiscal-idUSBRE91P0W220130301 [3/1/13]
3 - www.medscape.com/viewarticle/779980 [2/27/13]
4 - www.cnbc.com/id/100511717 [3/1/13]
5 - briefing.com/investor/calendars/economic/2013/02/25-01 [3/1/13]
6 - www.foxbusiness.com/economy/2013/02/21/consumer-prices-flat-in-january/ [2/22/13]
7 - www.reuters.com/article/2013/02/13/usa-economy-retail-idUSL1N0BCCZM20130213 [2/13/13]
8 - articles.marketwatch.com/2013-02-20/economy/37188507_1_wholesale-prices-vegetable-prices-higher-food-prices [2/22/13]
9 - www.ism.ws/ISMReport/NonMfgROB.cfm [3/5/13]
10 - briefing.com/investor/calendars/economic/2013/03/04-08 [3/4/13]
11 - www.usatoday.com/story/money/business/2013/02/20/january-fed-minutes/1933047/
12 - dealbook.nytimes.com/2013/03/04/chinas-push-to-cool-down-housing-raises-questions/ [3/4/13]
13 - www.bloomberg.com/news/2013-03-03/china-monetary-tightening-pressure-eases-as-growth-rebound-slows.html [3/3/13]
14 - www.nytimes.com/2013/03/05/business/global/jolt-from-italys-elections-may-not-be-enough.html [3/5/13]
15 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [2/28/13]
16 - bullionpricestoday.com/bullion-prices-plunge-in-february-us-gold-silver-coins-steady/ [3/1/13]
17 - www.bloomberg.com/news/2013-02-28/gold-falls-on-signs-of-economic-recovery-commodities-at-close.html [2/28/13]
18 - online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [3/1/13]
19 - www.marketwatch.com/story/home-sales-inch-up-in-january-as-inventory-shrinks-2013-02-21 [2/21/13]
20 - blogs.wsj.com/developments/2013/02/20/housing-starts-fall-but-economists-stay-positive/ [2/22/13]
21 - www.mercurynews.com/real-estate/ci_22670982/new-home-sales-hit-highest-level-more-than [2/26/13]
22 - www.census.gov/construction/nrs/pdf/newressales.pdf [2/26/13]
23 - www.freddiemac.com/pmms/ [3/4/13]
24 - money.cnn.com/quote/quote.html?symb=RUT [2/28/13]
25 - online.wsj.com/mdc/public/page/2_3024-m_globalstockindexes.html [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F12&x=0&y=0 [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F12&x=0&y=0 [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F29%2F12&x=0&y=0 [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F28%2F03&x=0&y=0 [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F28%2F03&x=0&y=0 [2/28/13]
26 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F28%2F03&x=0&y=0 [2/28/13]
27 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [3/4/13]
28 - www.cnbc.com/id/100508355 [2/28/13]

January Monthly Market Commentary

THE MONTH IN BRIEF
The S&P 500 opened 2013 with its best month since October 2011 – and its biggest January gain in percentage terms since 1997. Analysts felt the year might start with a positive month, but few expected a 5.04% breakout for the definitive Wall Street gauge. In fact, stocks around the globe had a great month – and so did oil. A fiscal cliff deal was signed into law, and a battle over the debt ceiling was postponed. Poor monthly indicators didn’t do much to hobble real estate’s rebound. Consumer confidence surveys offered mixed signals and the unemployment rate increased, but data showed households spending, saving and earning more.¹

DOMESTIC ECONOMIC HEALTH

While the American Taxpayer Relief Act of 2012 did extend the Bush-era tax cuts for the middle class, it also approved a 2% payroll tax hike for all working Americans. Nevertheless, Wall Street cheered the deal with a big rally on the year’s first market day, even as the wealthiest households reached for their aspirin in the face of higher income, investment and estate taxes. The ATRA put off the federal spending cuts planned for January 2 until March 1. On January 31, the Senate approved a bill authored by House Republicans to temporarily suspend the federal borrowing limit through May 18.^2,3

If Americans felt relief from this, it wasn’t demonstrably reflected in key surveys. January’s edition of the Conference Board’s consumer confidence index dropped 8.1 points to 58.6 (the lowest level in 14 months) while the University of Michigan’s final January consumer sentiment survey rose a mere 0.9 points to 73.8.⁴

The jobless rate ticked up to 7.9% in January, even though non-farm payrolls expanded by 157,000 positions. (The Labor Department simultaneously announced revised hiring totals from November and December – it turned out that job creation averaged a solid 221,000 in those two months.) Personal spending rose 0.2% in December, and early dividend payouts (and other factors) prompted a 2.8% rise in after-tax incomes. America’s personal savings rate reached 6.5%, a peak unseen since May 2009.^5,6

Retail sales were up 0.5% in December. Touching on retail prices, the Consumer Price Index was flat in December, showing just a 1.7% rise for the year – well under the Federal Reserve’s inflation target. Wholesale inflation fell 0.2% in December and only rose 1.3% for 2012, the smallest annual advance in the Producer Price Index since 2008.^7,8

January’s most stunning economic news actually pertained to the fourth quarter. The initial Q4 GDP estimate from the Bureau of Economic Analysis was -0.1%, with reduced defense spending, a drop in exports and a smaller-than-expected increase in inventories being the major factors.⁵

However, two globally respected measures of the manufacturing and service sectors – the purchasing manager indices at the Institute for Supply Management – both showed expansion for January. Last month’s ISM manufacturing PMI rose to 53.1 from December’s downwardly revised 50.2 (and backing that reading up, overall durable goods orders had increased 4.6% in December). Early in January, ISM released its service sector PMI for December, which came in at 56.1.^6,9,10

GLOBAL ECONOMIC HEALTH

Faint signals of economic improvement could be glimpsed in Europe. The Markit eurozone manufacturing PMI rose from 46.1 in December to 47.9 in January, and Germany’s manufacturing PMI climbed to 49.8, on the verge of expansion.

Eurozone annualized inflation moderated 0.2% to 2.0% last month – a low unseen since November 2010. Unemployment leveled off at 11.7% in the EU in December. All this aside, while the International Monetary Fund projects global growth at 3.5% in 2013, it also forecasts an 0.2% contraction in the eurozone economy this year following an 0.4% contraction for 2012.^11,12

A late-January Reuters poll of 250 prominent economists projected growth in the Asia Pacific region moderating in 2013, with the economies of Hong Kong, Singapore, and South Korea all forecast for GDP downgrades of 0.4-0.5%. However, China’s GDP was projected to improve 0.3% to 8.1% in 2013 – which would still represent its smallest annual growth since 2000. Looking at the HSBC PMIs for the region, China’s hit a two-year peak of 52.3 last month while India’s was at 53.2; Taiwan’s was at 51.5, Vietnam’s at 50.1. HSBC PMIs for Indonesia (49.7) and South Korea (49.9) showed January contraction. Australia’s AIG PMI fell 4.1 points to 40.2, in negative territory for an eleventh straight month.^13,14

WORLD MARKETS

Gains were prevalent around the world. In Europe, the DAX went +2.15%, the CAC 40 +2.51% and the FTSE 100 +6.43%. In Asia, the Nikkei 225 rose 7.48%, the Sensex 1.11%, the Hang Seng 4.40% and the Shanghai Composite 5.05%; the KOSPI pulled back 2.49%. Looking at other benchmarks in the Americas, the Bovespa sank 1.95%, the Bolsa gained 3.60%, the TSX Composite rose 2.02% and the MERVAL soared an astonishing 21.31%.¹⁵

Among regional indices, the S&P Asia 50 was flat (actually losing 0.04%), the Euro STOXX 50 gained 2.54%, the MSCI World Index climbed 5.00% and the MSCI Emerging Markets Index advanced 1.31%.^15,16

COMMODITIES MARKETS

Platinum was the hottest marquee commodity in January, rising 9.0% on the COMEX. Oil and corn were also hot, both gaining 6.1%. Palladium futures advanced 6.0%, silver futures 3.7% and copper futures 2.2%; gold slipped 0.9% for the month. Other January performances: soybeans, +3.5%; coffee, +2.2%; wheat, +0.2%; natural gas, -0.4%; cocoa, -1.4%; sugar, -3.7%. The Thomson Reuters CRB Index had its best month since August, showing a 3.0% gain. A 3.2% January ascent put the U.S. Dollar Index at 79.24 at the end of the month.¹⁷

REAL ESTATE

Shrinking inventory (the smallest supply of houses on the market since May 2005) contributed to a 1.0% slip in existing home sales in December. However, residential resales were up 12.8% for 2012, with foreclosures and short sales accounting for 24% of transactions (down 8% from a year before). New home sales dropped 7.3% in December but were up 19.9% in 2012 (the best year for new home buying since 1983). Pending home sales fell 4.3% for December. November’s Case-Shiller Home Price Index showed a 5.5% annual gain across 20 cities, beating forecasts. Construction spending was up 0.9% in December and the NAHB/Wells Fargo Housing Market Index maintained a 6-year peak last month.^9,18,19

Home loans grew more expensive in January. At month’s end, Freddie Mac had the average interest rate on the 30-year FRM at 3.53% and rates on the 15-year FRM, 5/1-year ARM and 1-year ARM respectively averaging 2.81%, 2.70% and 2.59%. In Freddie Mac’s December 27 Primary Mortgage Market Survey, the average interest rates on those loans were respectively 3.35%, 2.65%, 2.70% and 2.56%.^20,21

LOOKING BACK…LOOKING FORWARD

Bears all but hibernated last month. The four most-watched U.S. indices all scored big gains in January, including the Russell 2000, which cracked the 900 ceiling and ended the month at 902.09. When the Dow has had a positive January, it has had a positive year 82% of the time. The S&P 500 wrapped up January at 1,498.11, the Dow at 13,860.58 and the Nasdaq at 3,142.31.^1,22

The big question for February: can the Dow and S&P reach all-time highs? On February 1, the DJIA rallied to close above 14,000 for the first time in over five years. On February 4, the Dow descended nearly 130 points with new worries about higher sovereign bond yields in Spain and Italy a big factor. The question analysts have pondered in the wake of the market’s breakout is an old one: what exactly is validating the rally? Unemployment has not lessened; the GDP reading from the fourth quarter was a letdown. Still, real estate looks better, consumer spending has not tailed off, the manufacturing and service industries seem to be expanding, and the Federal Reserve is doing its part to provide continuing stimulus to the economy. There is strong anticipation (some might even call it expectation) that the Dow and S&P will close at all-time highs in the near term. Some analysts insist a pullback is due, and warranted. Bulls counter with the argument that if the market retreats this month, the biggest factor will simply be the psychology that stocks should retreat, that this advance is simply too good to be true. In the best-case scenario, the Dow reaches an all-time high this month attributable to market fundamentals as well as confidence and excitement.²⁸

UPCOMING ECONOMIC RELEASES: The February calendar unfolds like so ... ISM’s January non-manufacturing index (2/5), December wholesale inventories (2/8), January retail sales and December business inventories (2/13), January industrial production and the University of Michigan’s preliminary February consumer sentiment survey (2/15), February’s NAHB housing market index (2/19), the January PPI, the January 30 Fed minutes, and reports on January housing starts and building permits (2/20), January’s CPI and existing home sales and the Conference Board’s January Leading Economic Indicators index (2/21), January new home sales, the Conference Board’s February consumer confidence poll and the December Case-Shiller home price index and FHFA housing price index (2/26), January durable goods orders and pending home sales (2/27), and the second reading on Q4 GDP (2/28). Reports on January consumer spending and vehicle sales and the final February University of Michigan consumer sentiment survey arrive March 1, as does the February ISM manufacturing index. February’s unemployment rate won’t be announced until March 8 – that is when the Bureau of Labor Statistics issues its next monthly report.

 

To Your Prosperity,

Kevin Kroskey

This article prepared in conjunction with Peter Montoya.

Citations.

1 - blogs.barrons.com/stockstowatchtoday/2013/01/31/dow-sp-500-see-best-january-since-1990s/ [1/31/13]
2 - www.cbsnews.com/8301-250_162-57561752/obama-signs-fiscal-cliff-bill-into-law/ [1/3/13]
3 - www.usatoday.com/story/news/politics/2013/01/31/senate-debt-limit-extension-approved/1881191/ [1/31/13]
4 - www.bloomberg.com/news/2013-02-01/u-s-michigan-consumer-sentiment-increase-may-boost-spending.html [2/1/13]
5 - www.businessweek.com/articles/2013-02-01/januarys-strong-jobs-report-trumps-a-decline-in-gdp [2/1/13]
6 - www.bloomberg.com/news/2013-01-31/consumer-spending-in-u-s-climbed-in-december-as-incomes-surged.html [1/31/13]
7 - www.usatoday.com/story/money/business/2013/01/16/consumer-price-index-december/1838907/ [1/16/13]
8 - news.morningstar.com/articlenet/article.aspx?id=581091 [1/15/13]
9 - briefing.com/investor/calendars/economic/2013/01/28-01 [2/1/13]
10 - www.ism.ws/ISMReport/NonMfgROB.cfm [1/4/13]
11 - online.wsj.com/article/SB10001424127887323701904578277370700712726.html [2/1/13]
12 - money.cnn.com/2013/01/23/news/economy/europe-economy-imf/index.html [1/23/13]
13 - www.reuters.com/article/2013/01/23/us-economy-asia-poll-idUSBRE90M0EZ20130123 [1/23/13]
14 - www.globalpost.com/dispatch/news/afp/130201/asia-manufacturing-eases-january [1/30/13]
15 - bloomberg.com/markets/stocks/ [1/31/13]
16 - mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [1/31/13]
17 - reuters.com/article/2013/01/31/markets-commodities-idUSL1N0B0IBT20130131 [1/31/13]
18 - www.usatoday.com/story/money/business/2013/01/22/existing-home-sales-december/1854563/ [1/22/13]
19 - www.sfgate.com/business/bloomberg/article/New-Home-Sales-Decline-Blemishes-Best-Year-Since-4223610.php [1/25/13]
20 - www.freddiemac.com/pmms/index.html?year=2012 [2/4/13]
21 - www.freddiemac.com/pmms/ [2/4/13]
22 - money.cnn.com/quote/quote.html?symb=RUT [1/31/13]
23 - montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F12&x=0&y=0 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F12&x=0&y=0 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F12&x=0&y=0 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F03&x=0&y=0 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F03&x=0&y=0 [1/31/13]
24 - bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F03&x=0&y=0 [1/31/13]
25 - www.bloomberg.com/markets/stocks/ [12/31/12]
26 - treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [2/4/13]
27 - treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm71002.pdf [1/10/03]
28 - www.usnews.com/news/business/articles/2013/02/04/us-stocks-fall-after-dows-rally-to-14000 [2/4/13]