For the Week Ended December 31, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (09/30/10)	Previous Week (12/24/10)	Current Week (12/31/2010)	YTD Change
Dow Jones Industrial	10,428.05	10,788.05	11,573.49	11,577.51	+11.02%
NASDAQ	2,269.15	2,368.62	2,665.60	2,652.87	+16.91%
S&P 500	1,115.10	1,141.20	1,256.77	1,257.64	+12.78%
Russell 2000	625.39	676.14	788.96	783.65	+25.31%
Global Dow	1,984.48	1,947.85	2,077.24	2,087.44	+5.19%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.52%	3.39%	3.31%	-54 bps

 

 “Should old “recessions” be forgot, and never brought to mind?”  As 2010 comes to a close, investors have done their best to forget about the “late great recession” of 2008/09 and the associated ramifications.  Of course, plenty of remnants linger, both domestically and abroad.  The US unemployment rate remains higher than most would prefer and will continue to hang over the economy like an albatross until companies start hiring again and folks stop worrying about that next paycheck.  Overseas, the EU struggles as stronger nations like Germany are forced to pick up the slack (and the tab) for the fiscal mistakes of their weaker brethren in Greece, Ireland, Portugal, etc.  Through all the uncertainties, however, the equity market regained its previous momentum, reversed course from the freefall, and moved to levels not seen in two-plus years.  A successful holiday season brought newfound optimism that the consumer had grown tired on sitting on the sidelines and was prepared to contribute to the growth of the economy.  Double-digits returns ruled the day (rather the year) and investors head into 2011 with renewed confidence for even better times ahead.  While some bullish investors seem likely to disregard the prior doldrums as a “minor” blip on the radar screen, they would be smart to remember another famous quote…"Those who cannot remember the past are condemned to repeat it." 

The final week of trading was highlighted by severe winter storms across the northeast that brought life to a standstill in New York and New Jersey and contributed to even lighter than usual volume on the exchanges.  Fortunately for retailers, the storms hit AFTER Christmas and merely impacted the post-holiday gift returns and some after-season bargain-basement shopping (see below).  Then again, home improvement companies like Home Depot saw snow blowers and shovels fly off the shelves in several areas.  The week also brought favorable ratings for “new and improved” General Motors from the likes of Barclays, Morgan Stanley and Citigroup and news that airliners (thanks Delta and United) would be raising their prices in the new year (compliments of higher crude).  Speaking of “new and improved,” the poster child (or at least one of them) for the financial debacle, AIG, appears to be back in the saddle with new credit lines to help it move beyond the government coffers. 

Oil shot up above $91/barrel during the week before trailing off on some higher-than-expected inventory numbers.  One technical analyst even predicted $97.90/barrel in the coming weeks after the appearance of a “bullish flag” formation (whatever that means).  Barclays forecast record global exploration and production activity for 2011 as the major energy players get back into action as crude prices have moved back into their comfort zone.  With talks of inflation resuming around the office water coolers (at least for those who worked this week), gold skyrocketed past the $1,400 level.  Equities were relatively flat throughout much of the week as many traders were unable to make it to work and those who did took the opportunity to “window-dress” their portfolios and prepare for the new year.  All in all, stocks ended 2010 on a high note with the best December in about two decades.  And that’s something worth celebrating.  Happy new year. 

Economic Calendar

Date	Release	Comments
December 28	Consumer Confidence (12/10)	Slight decline as year-end approached
December 30	Jobless Claims (12/25/10)	Fell to lowest level since July 2008
The Week Ahead
January 3	Construction Spending (11/10)
	ISM (Manu) Index (12/10)
January 4	Factory Orders (11/10)
	Fed Meeting Minutes
January 5	ISM (Services) Index (12/10)
January 6	Jobless Claims (01/01/11)
January 7	Nonfarm Payroll (12/10)
	Unemployment Rate (12/10)
	Consumer Credit (11/10)

 

For months, they panicked and predicted “doom and gloom.”  For months, they worried about the depressed labor market and how nervous consumers would take another year off and only buy the necessities of life this season.  For months, they competed with each other through discount wars, Internet specials, and offers of “free shipping.”  Finally, the results are in…holiday sales appear primed to exceed the record level of 2007 with revenues expanding at the fastest pace since 2006.  Consumer spending during the 50-day period from November 5 through December 24 climbed by 5.5% from last year as shoppers went “crazy” for clothing, jewelry, and other luxury goods (not quite the necessities of life).  Analysts claim that after-Christmas activity often represents about 15% of total holiday sales as gift cards lure folks back into the malls and new discounts keep those cash registers ringing.  If that trend holds, 2010 could be the best holiday season ever reported.  Of course, the naysayers chime in to rain on the (Tournament of Roses) parade.  Labor remains weak (and may be getting weaker); higher energy prices will make the costs of everyday goods and services more expensive; home prices continue to fall and could lead to additional foreclosures.  (Someone needs to get these guys some eggnog…that spiked kind.) 

 

In other economic news, consumer confidence actually slipped a bit in December (despite the strong holiday retail numbers), though these surveys are typically a less-than-accurate depiction of overall sentiment.  (What consumers are “doing” is far more important than what they are “saying.”)   Jobless claims fell to its lowest level since July 2008 and the four-week moving average dropped again as well.  These weekly numbers have started offering renewed hope that the labor picture may pick up again in early 2011 (despite the gloom of the naysayers).  Shifting abroad, China stirred the trade pot a bit more this week by cutting its quota on exports of rare metals, a key component in TVs, smart-phones, and high-tech batteries.  Currently, China supplies about 95% of these products to manufacturers across the globe.  Most analysts believe that the newest economic Superpower is not through taking measures to halt its rapid growth rate and counter the effects of inflation, despite a relatively lackluster manufacturing report this week.

 

On the Horizon…Investors and economists alike “ease back” into work after their vacations (or digging out of the snow) and get bombarded with numbers from across every sector.  Of note, the unemployment rate highlights the week’s releases as folks hope to see some improvement as indicated by the recent benefits claims data (though many fear an ultimate 10% jobless rate to be inevitable in the coming months).  Stocks also get an early test as January begins as technical watchers claim that the first month of the year often dictates how the entire year will proceed.  In fact, the January Effect states that the first five days of the month set the tone and serve as a foreshadowing for the remainder of the year.  (In 2010, the major indexes surged about 2% or more in the initial week of trading.)   So celebrate the old/new year with an eye toward the future.  Evaluate the progress made and the positive direction things seem to be heading…but please don’t forget the past or the reasons for the prior challenges.  All the best in 2011. 

 

Brounes & Associates is a Houston-based consulting/marketing firm that performs research, marketing, and education projects for financial services companies and other professionals.  “And That’s the Week That Was” is a weekly market/economic commentary that is distributed each Friday afternoon.  Any financial professionals who have interest in rebranding the piece and sending to their investors should inquire to:

Ron Brounes

713-962-9986 (Direct)

ron@ronbrounes.com

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