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Monthly Economic Update February 2012

February 7, 2012

John Jastremski Presents:

Monthly Economic Update                          February 2012

THE MONTH IN BRIEF

In recent stock market history, there have been many peaks and valleys. January 2012 represented a peak; it was the best January for U.S. stocks since 1997, with the S&P 500 rising 4.36%. It was also the S&P’s best month overall since October. Wall Street seemed to worry a little less about Europe during the month and a little more about subpar stateside indicators like consumer spending and home sales. Still, the mood was definitely bullish.1,2

DOMESTIC ECONOMIC HEALTH 

Consumers were earning more – and apparently saving more of what they earned. Personal incomes rose 0.5% in December, and so did the personal saving rate, yet personal spending was flat for the month. After consumer spending increases of only 0.1% in October and November, this seemed to hint at a slowing economy in the last quarter of 2011. However, the jobless rate was at 8.3% in January, the lowest level in three years, thanks to the addition of 243,000 jobs.3, 24

Was consumer confidence wavering? It depended on which barometer you checked. The Conference Board’s January survey fell to 61.1 from December’s 64.8 final revised mark, in the previous month, according to the Conference Board. Economists polled by Reuters had thought it would climb to 68.0. The University of Michigan’s consumer sentiment survey made a major advance in January, going to 75.0 from the year-end mark of 69.9.2,4

The initial estimate of Q4 2011 GDP arrived in late January; a growth of 2.8%, the best in six quarters, was still below the expectations of some analysts. Speaking of growth, our manufacturing sector grew for a thirtieth straight month in January, according the PMI index of the Institute for Supply Management, rising a full percentage point to 54.1. ISM’s service sector index had also posted a December advance to 52.6 from 52.0. Not surprisingly, durable goods orders improved 3.0% in December, the third consecutive monthly gain for the indicator; orders for hard goods increased 10.0% across 2011.4,5,6,7

As for consumer and wholesale inflation, the threat was mild to say the least. In fact, the Consumer Price Index didn’t budge in December and the Producer Price Index retreated 0.1% (with import prices falling for the fourth month in five). So, 2011 goes in the books with 3.0% consumer inflation and 2.2% core inflation; the most since 2007, but hardly remarkable.8

GLOBAL ECONOMIC HEALTH

Efforts to restructure Greece’s debt fell apart at mid-month, but picked up some momentum. At the end of January, a deal looked imminent, but in the eyes of some analysts, investors would have to accept as much as a 70% haircut on Greekut yes of some analysts, banks would have to accept as muchce Index didn’obernsumer spending and home sales (both less than bonds to take Greece’s debt-to-GDP ratio down to a sustainable 120% or so. Last month, Standard & Poor’s downgraded credit ratings of nine EU nations: it cut ratings for France, Austria, Slovakia, Slovenia and Malta by a notch and Italy, Portugal, Spain and Cyprus by two notches, commenting that the European Union’s debt reduction plan was not of “sufficient size or scope”.9,10

Manufacturing did pick up in some key economies in January. Our key PMI (the ISM survey) improved for the seventh straight month, and China’s official PMI improved 0.2% to 50.5 with new orders at a three-month peak. The U.K.’s PMI climbed above 50 again to 52.1. Germany’s manufacturing index advanced for the first time since September, and that helped the EU’s Markit PMI rise to 48.8 last month, but the Markit PMI has been below 50 (read: contraction) since last July. Overall, JPMorgan’s global manufacturing index rose to 51.2 last month.11

WORLD MARKETS

Broadly speaking, it was a very good month for equities. Three of the BRICs posted outstanding gains: Sensex, +11.2%; RTSI, +14.1%, Bovespa, +11.1%. (The Shanghai Composite went +4.2% last month.) Argentina’s Merval pulled off a 13.2% gain and the Hang Seng rose 10.6%; the MSCI Emerging Markets Index climbed 11.2%. Other notable indices and their January performances: Dow Jones Asia Pacific Index, +8.1%; MSCI World Index, +4.9%; Nikkei 225, +4.1%; DAX, +9.5%; CAC 40, +4.4%; FTSE 100, +2.0%; KOSPI, +7.1%; All Ordinaries, +5.2%; TSX Composite, +4.2%. At the back of the pack among indices of consequence: Spain’s IBEX (-0.7%) and Malaysia’s Kuala Lumpur Composite (-0.6%).12,13

COMMODITIES MARKETS 

Metals set the pace in the sector last month. Gold fully rebounded from a poor December with a 10.91% monthly gain. Copper futures gained 10.30% and silver futures soared 19.15%. RBOB gasoline futures rose 8.79% on the NYMEX last month; retail pump prices went up 5.32%. Oil (-0.35%) and natural gas (-16.26%) retreated thanks to lessening demand and warmer weather. Key crop futures rose and fell, with coffee going -5.07% on the month, corn going -1.16%, cotton +3.09% and wheat +2.03%. The U.S. Dollar Index fell 1.37%.14

REAL ESTATE

The bad news seemed to outweigh the good news in this sector. The National Association of Realtors said that existing home sales improved 5.0% in December; in mid-January, Freddie Mac reported another record-low average interest rate for the 30-year FRM (3.88%, and a new record low would be set in early February). On the other hand, NAR reported a 3.5% dip in pending home sales in December and the November Case-Shiller Home Price Index slipped for October, its third straight monthly descent. While the Commerce Department noted that single-family home starts hit their highest level since April 2010 in December, overall housing starts dropped 4.1% for the month and new home sales slipped 2.2% to an annual rate of just 307,000. The annual new home sales pace is around 750,000 in a decent year.8,14,15,16

Here was the change in average home loan interest rates between Freddie Mac’s December 29 and February 2 Primary Mortgage Market Surveys: 30-year FRMs, 3.95% down to 3.87%, 15-year FRMs, 3.24% down to 3.14%; 5/1-year ARMs, 2.88% down to 2.80%; 1-year ARMs, 2.78% down to 2.76%.17,18

LOOKING BACK…LOOKING FORWARD 

January was the best month for all three headline U.S. stock indices since October. The DJIA ended January at 12,632.91, the S&P 500 at 1,312.41 and the NASDAQ at 2,813.84. The CBOE VIX (the so-called “fear index”) was near 19 at month’s end.1,2,19

% CHANGE

Y-T-D

1-MO CHG

1-YR CHG

10-YR AVG

DJIA

+3.40

+3.40

+6.23

+2.73

NASDAQ

+8.01

+8.01

+4.21

+4.55

S&P 500

+4.36

+4.36

+2.04

+1.61

REAL YIELD

1/31 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.28%

1.08%

2.40%

3.48%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 1/31/121,20,21,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 We had a very nice January, and while you can’t gauge tomorrow’s market behavior off history, it is encouraging to note that the S&P 500 advanced an average of 23% during the last five years in which it gained 4% or more for January. Another nice tidbit: when the Dow has had a positive January, it has finished that year in the black 82% of the time.1,2

Manufacturing seems to have picked up around the globe, and our manufacturing sector might be among the world’s healthiest. We still seem to be in a slow recovery, and the chance of a recession in the European Union (along with its sovereign debt morass) may exert a drag on our markets in February and beyond. Still, it looks like Greece is in line for a second IMF bailout and an actual “solution” toward its debt problem, so institutional investors might be less troubled by the EU debt crisis. If our economy goes to stall speed, the Fed could even opt for a QE3 in the coming months (a possibility in the opinion of some Wall Street analysts). February holds a lot of promise; for the first month in many, world markets may turn on headlines from America instead of Europe.

UPCOMING ECONOMIC RELEASES:

Here is the schedule for the rest of the month: the initial University of Michigan consumer sentiment survey for February (2/10), January retail sales and December business inventories (2/14), January industrial output and the January 25 FOMC minutes (2/15), the January PPI and January housing starts and building permits (2/16), the January CPI and the Conference Board’s Leading Economic Indicators index for February (2/17), January existing home sales (2/22), January new home sales and the final University of Michigan consumer sentiment survey for the month (2/24), January pending home sales (2/27), January durable goods orders, the December Case-Shiller home price index and the Conference Board’s February consumer confidence poll (2/28), and the second estimate of Q4 GDP plus a new Beige Book from the Fed (2/29). The January consumer spending numbers come out on March 1.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Citations.

1 – blogs.wsj.com/marketbeat/2012/01/31/data-points-u-s-markets-77/ [1/31/12]
2 – http://www.cnbc.com/id/46203174/ [1/31/12]

3 – http://www.nytimes.com/2012/01/31/business/economy/incomes-rise-but-spending-is-flat.html [1/30/12]

4 – http://www.cnbc.com/id/46162429 [1/27/12]

5 – http://www.ism.ws/ISMReport/MfgROB.cfm [2/1/12]

6 – http://www.ism.ws/ISMReport/NonMfgROB.cfm [1/5/12]

7 – http://www.marketwatch.com/story/durable-goods-orders-up-strong-30-in-december-2012-01-26-92200 [1/26/12]

8 – http://www.businessweek.com/news/2012-01-20/consumer-prices-in-u-s-little-changed-as-fuel-costs-fall.html [1/20/12]

9 – blogs.wsj.com/marketbeat/2012/02/01/how-to-read-a-greek-debt-deal/ [2/1/12]

10 – money.msn.com/market-news/post.aspx?post=a677f0ec-38f9-432c-bbc1-fb98c5362013 [1/13/12]

11 – http://www.reuters.com/article/2012/02/01/us-global-economy-idUSTRE8101C520120201 [2/1/12]

12 – online.wsj.com/mdc/public/page/2_3022-intlstkidx.html [1/31/12]

13 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [1/31/12]

14- money.msn.com/market-news/post.aspx?post=cb1f3e7e-3c74-45b7-9f9a-4cccd825c584 [1/31/12]

15 – http://www.businessweek.com/news/2012-01-26/contracts-to-buy-u-s-homes-near-19-month-high-economy.html [1/26/12]

16 – http://www.foxbusiness.com/news/2012/01/26/us-new-homes-sales-drop-22-prices-fall/ [1/26/12]

17 – http://www.freddiemac.com/pmms/ [2/2/12]

18 – http://www.freddiemac.com/pmms/index.html?year=2011 [2/2/12]

19 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [11/2/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F11&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F31%2F02&x=0&y=0 [1/31/12]

21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [1/31/12]

22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/31/12]

23 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm10902.pdf [1/9/02]

24 – washingtonpost.com/business/economy/us-adds-243k-jobs-in-january-unemployment-rate-drops-to-83percent/2012/02/03/gIQAhV3mmQ_story.html [2/3/12]


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