AND THAT’S THE WEEK THAT WAS…

For the Week Ended December 3, 2010

 

Market Matters…         

                           

Market/Index	Year Close (2009)	Qtr Close (09/30/10)	Previous Week (11/26/10)	Current Week (12/03/2010)	YTD Change
Dow Jones Industrial	10,428.05	10,788.05	11,092.00	11,382.09	+9.15%
NASDAQ	2,269.15	2,368.62	2,534.56	2,591.46	+14.20%
S&P 500	1,115.10	1,141.20	1,189.40	1,224.71	+9.83%
Russell 2000	625.39	676.14	732.73	756.42	+20.95%
Global Dow	1,984.48	1,947.85	1,978.32	2,039.21	+2.76%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.85%	2.52%	2.86%	3.02%	-83 bps

 

What started on Black Friday continued through Cyber Monday (and hopefully beyond).  The National Retail Federation (NRF) reported that 212 million consumers hit the malls (or retail web sites) during the first official shopping weekend of the holiday season, an increase of almost nine percent from 2009, while the average shopper spent 6.4% more than last year.  Sales projections for the Monday after Thanksgiving showed a 20% jump in activity on a year-over-year basis.  For all of November, same store sales jumped by a much larger-than-anticipated six percent with department stores like Macy’s, JC Penney, and Kohl’s leading the charge.  Based on the early results, the NRF expects gains in retail sales of 2.3% during this holiday season.  Staffing company Adecca points out a big downside to the huge jump in online sales as many employees engaged in holiday shopping during the normal workday, thus leading to decreased productivity.  (Then again, domestic workers are plenty good at finding ways to simply LOOK productive.) 

 

Shifting to politics, Prez Obama hoped to gain a holiday gift from Congress in the form of real compromise on tax policy, while Republicans planned to reward the American people for their recent votes by extending the Bush tax cuts that are set to expire at the end of the year.  Compromise has become an ugly word in DC these days, but analysts expect some temporary extension of the cuts at this junction.  Such news would be welcome to investors who could avoid paying the higher capital gains taxes for now and companies would still have incentive to distribute dividends which also receive favorable treatment.  At least, they are talking (for now). 

 

In other corporate news, Wal-Mart is looking to expand into the growing South African retail market by offering $2.32 billion for a 51% interest in Massmart Holdings.  Kraft is seeking arbitration against Starbucks over a previous distribution deal, though the coffee giant seemed unfazed and announced plans to triple its stores within China to more than 1,500 within five years.  Goldman Sachs and GE were among the major players who took advantage of the Fed’s generosity during the financial crisis by borrowing at discounted levels.  Such disclosures came to the surface as part of the move for greater transparency within the financial reform passed in July.  

 

Though November brought the first down month for stocks since August, investors reemerged to kick off December as the better-than-expected holiday numbers bode well for a resurgence of the economy (at least before the late-week labor releases).  News from Europe remained confusing as Ireland accepted terms of a bailout amid threats of contagion to Portugal and/or Spain.  European Central Bank officials tried to maintain an optimistic tone as they agreed to continue prior stimuli (including a bond buying program) so that ailing banks can have access to much-needed liquidity in these uncertain times.  Oil popped up to a two-year high (just below $90/barrel) on hopes that the economy remains on the mend (at least before the late-week labor releases – part 2) which would lead to greater demand for crude.  Equities enjoyed a nice mid-week rebound as the markets move into the homestretch.  (A strong close would be a welcome holiday gift.) 

Economic Calendar

Date	Release	Comments
November 30	Consumer Confidence (11/10)	Best showing since June 2010
December 1	ISM – Manu  (11/10)	Slight decline though still sector expansion
	Construction Spending  (10/10)	Unexpected increase
	Fed Beige Book	Improved manufacturing and consumer activities
December 2	Jobless Claims (11/27/10)	4-week average at lowest level since August 2008
December 3	Unemployment Rate (11/10)	Highest level since April 2010
	Nonfarm Payroll (11/10)	Fewer than expected jobs increase
	Factory Orders (10/10)	Biggest drop in almost 2 years
	ISM – Services (11/10)	11th consecutive month of sector expansion
The Week Ahead
December 7	Consumer Credit (10/10)
December 9	Jobless Claims (12/04/10)
December 10	Balance of Trade (10/10)

 

Is it the weekend yet?  After a few days off for Thanksgiving, investors were greeted with a  hectic economic calendar and plenty of holiday sales numbers to digest. Of note…the manufacturing and services sectors continued to expand in November (for the 16th and 11th straight month respectively).  Consumer confidence climbed to its strongest showing since June 2010.  Constructing spending surprisingly rose for the second consecutive month on surging residential expenditures.  Factory orders fell for the first time in four months, though the results were not as bad as some had predicted. 

 

While most every release pointed to a rebound in the economy (slowly but surely), investors were most interested in the late-week labor data for signs that unemployment was finally turning the corner.  Unfortunately, they did not get the results many were looking (hoping) for.  The jobless rate edged closer to 10 percent (9.8% from 9.6% in October), its highest level since April, and a smaller-than-expected 39,000 new jobs were added to the economy last month.  Even within retail, where investors had been rejoicing about the promising signs of the holidays, over 25,000 related jobs were actually lost in November.  Analysts attribute the disappointing decline to the greater number of sales generated online, though some expect a nice turnaround in December when many retailers ramp up workers (even temps) to handle the last minute traffic. 

 

The Federal Reserve released its Beige Book which showed that both manufacturing and retail activity picked up in the fall in 10 of its 12 regions.  Still, the disappointing labor news served to give the Fed additional cover for the recently announced (and controversial) QE2 bond buying program.  In the immediate aftermath of the unemployment releases, interest rate futures indicated that most traders do not expect the policymakers to raise short-term rates until mid-2012.  (Before the numbers, Fed watchers were expecting a higher funds rate by December 2011. 

 

Shifting abroad, Ireland accepted a $112 billion bailout and many wondered whether Spain or Portugal would be next.  European Central Bank prez Trichet did his best Bernanke impression by claiming that the ECB stands prepared to “prop up the government bond markets…by ramping up purchases of government debt” and will not be unwinding prior stimulus programs at this time.  (Weren’t these guys bitching about QE2 just a few days ago?)   Meanwhile, China’s manufacturing sector posted another strong month and government officials seem committed to adjusting policy to combat inflation (even at the expense of some economic growth). 

 

On the Horizon…Retail, retail, more retail.  Analysts continue to over-analyze virtually every measure of sales activity for confirmation of the season’s success.  Eternal pessimists point out that the strong start actually means consumers will complete their shopping early and the numbers will drop off throughout the month.  (So, let’s prove them wrong…see you at Wal-Mart.) 

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

(c) Brounes & Associates

www.ronbrounes.com