February 25, 2013
Monthly Economic Update: February 2013
Developments that affected the economy & the markets in January.
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 at the prospect 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 (which was 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
|
% CHANGE |
1-MO CHG |
2012 |
1-YR CHG |
10-YR AVG |
|
DJIA |
+5.77 |
+7.26 |
+9.72 |
+7.21 |
|
NASDAQ |
+4.06 |
+15.91 |
+11.67 |
+13.79 |
|
S&P 500 |
+5.04 |
+13.41 |
+14.15 |
+7.51 |
|
REAL YIELD |
1/31 RATE |
1 YR AGO |
5 YRS AGO |
10 YRS AGO |
|
10 YR TIPS |
-0.57% |
-0.28% |
1.33% |
2.34% |
Sources: bloomberg.com, bigcharts.com, treasury.gov, treasurydirect.gov – 1/31/131,23,24,25,26,27
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.
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 rest of January unfolds like this: ISM’s December non-manufacturing index, November factory orders and the December jobs report (1/4), November wholesale inventories (1/10), December retail sales, November business inventories and the December PPI (1/15), January’s NAHB housing market index, a new Fed Beige Book and December’s CPI and industrial output (1/16), December housing starts and building permits (1/17), the University of Michigan’s preliminary consumer sentiment survey for January (1/18), December existing home sales (1/22), the November FHFA housing price index (1/23), the Conference Board’s Leading Economic Indicators index for December (1/24), December new home sales (1/25), December durable goods orders and pending home sales (1/28), the Conference Board’s first monthly consumer confidence survey of 2013 and the November Case-Shiller home price index (1/29), an FOMC policy statement and the initial estimate of Q4 GDP out of Washington (1/30), and the December consumer spending report (1/31). The University of Michigan’s final consumer sentiment survey for January actually comes out on February 1, a day loaded with other crucial data (the January jobs report, the January ISM manufacturing index and January auto sales figures).
Will the Dow and/or S&P break records this month? Will the winter rally be sustainable? The positive opening to the year may have you thinking about your financial goals (short-term and long-term) in a new light. If you have any questions or concerns on your mind this month, please contact me at 863.382.0037 or via e-mail at pstatler@statlerfinancial.com
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. . Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The KOSPI Index is a capitalization-weighted index of all common shares on the Korean Stock Exchanges. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Bolsa Mexicana de Valores, or BOLSA, is Mexico’s only stock exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The price-weighted MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The S&P Asia 50 is an equity index drawn from four major Asian markets – Hong Kong, Singapore, South Korea, and Taiwan. The EURO STOXX 50 Index, Europe’s leading Blue-chip index for the eurozone, provides a blue-chip representation of supersector leaders in the eurozone. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
Citations.
1 – blogs.barrons.com/stockstowatchtoday/2013/01/31/dow-sp-500-see-best-january-since-1990s/ [1/31/13]
2 – http://www.cbsnews.com/8301-250_162-57561752/obama-signs-fiscal-cliff-bill-into-law/ [1/3/13]
3 – http://www.usatoday.com/story/news/politics/2013/01/31/senate-debt-limit-extension-approved/1881191/ [1/31/13]
4 – http://www.bloomberg.com/news/2013-02-01/u-s-michigan-consumer-sentiment-increase-may-boost-spending.html [2/1/13]
5 – http://www.businessweek.com/articles/2013-02-01/januarys-strong-jobs-report-trumps-a-decline-in-gdp [2/1/13]
6 – http://www.bloomberg.com/news/2013-01-31/consumer-spending-in-u-s-climbed-in-december-as-incomes-surged.html [1/31/13]
7 – http://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 – http://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 – http://www.reuters.com/article/2013/01/23/us-economy-asia-poll-idUSBRE90M0EZ20130123 [1/23/13]
14 – http://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 – http://www.usatoday.com/story/money/business/2013/01/22/existing-home-sales-december/1854563/ [1/22/13]
19 – http://www.sfgate.com/business/bloomberg/article/New-Home-Sales-Decline-Blemishes-Best-Year-Since-4223610.php [1/25/13]
20 – http://www.freddiemac.com/pmms/index.html?year=2012 [2/4/13]
21 – http://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 – http://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 – http://www.usnews.com/news/business/articles/2013/02/04/us-stocks-fall-after-dows-rally-to-1400
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