Markets Off to the Races in 2012
Advisors Asset Management
By Matt Lloyd
January 3, 2011
As we kick off the New Year, the markets are starting like Usain Bolt (the world-record holder in several events) gets when he starts his track meets. The European markets are up already for the year after two trading days in the books with the German DAX index up 4.55% and the Euro Stoxx 50 up 3.17%. The U.S. markets are moving higher with gains of nearly 2% for the day. Though a few trading days don’t translate to what will happen over the year, the combination of improved manufacturing data across the globe and a further comprehension of the dramatic comments made by the ECB (European Central Bank) President Draghi last week seems to be fueling the gains.
With the onset of quasi-quantitative easing with the ECB’s assistance (as discussed last week) and the further promise that the mandate for price stability in Europe requires action when both inflation and deflation occur, many of the cautious investors may see this as New Year’s resolution that might stick for a little while. The Treasury markets are consequently selling off as is the dollar index and slight gains in the Euro and Yen.
With the release of better than expected news on the domestic manufacturing front of both ISM (Institute for Supply Management) Manufacturing and ISM prices paid, the volatile level of construction spending as measured monthly caught our attention. It wasn’t necessarily that the jump was so positive on the current month, but rather the revision of last month. We are bullish on real estate for 2012 and beyond (a case we will detail in length shortly) so a revision of a previous months gain from +0.8% to a revised -0.2% catches your attention. When we look closer, it appears that the difference between surveys and actual are just as hit or miss.
Survey vs. Actual: Construction Spending
Source: US Census Bureau, Bloomberg
For the last eight or more years, one notices that surveys are very little help in actual results, especially on the monthly oscillations. As we have mentioned in the past, we like to review year over year with the monthly movements to better ascertain longer-term trends.
Construction Spending Year over Year
Source: US Census Bureau, Bloomberg
As we begin the New Year, we are reminded of looking at the context of the volatile swings that occur in all economic releases.
Happy New Year!
(c) Advisors Asset Management
