For the Week Ended January 21, 2011

Market Matters…         

                           

Market/Index	Year Close (2010)	Qtr Close (12/31/10)	Previous Week (01/14/11)	Current Week (01/21/11)	YTD Change
Dow Jones Industrial	11,577.51	11,577.51	11,787.38	11,871.84	+2.54%
NASDAQ	2,652.87	2,652.87	2,755.30	2,689.54	+1.38%
S&P 500	1,257.64	1,257.64	1,293.24	1,283.35	+2.04%
Russell 2000	783.65	783.65	807.57	773.18	-1.34%
Global Dow	2,087.44	2,087.44	2,145.32	2,142.93	+2.66%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	3.31%	3.31%	3.33%	3.42%	11 bps

 

With another corporate earnings season moving into high gear and equities riding a seven week winning streak, a healthy bit of skepticism (not necessary pessimism) has crept into the investor mindset.  Some analysts still want to see more revenue growth as opposed to cost-cuts in the earnings reports.  Others fear that “the trend is your friend” may be a nice guide, but investors may be disregarding the ongoing debt issue in the EU and the rise in interest rates throughout emerging markets.  Contrarians note that a market sentiment survey just registered “above average bullishness” for the 19^th consecutive week, the longest time frame since 2004.  Some claim that once retail (individual) investors climb on the bullish train, it may be time to jump off. 

For those analysts eager to see revenue improvements, the week brought some favorable news.  GE, a conglomerate often viewed as an economic barometer, experienced its first increase in total revenue since 2008 on strong industrial demand from emerging countries.  IBM posted its best quarter of revenue growth in almost 10 years and Apple continued to report record sales of its various “new new things” (though many investors fear Steve Jobs’ void from the boardroom due to illness could impact product development in the quarters to come).  Google announced better-than-expected revenue growth (and its own shift in corporate leadership).  Morgan Stanley and Wells Fargo led the way for financials with solid quarters, though Goldman Sachs, Citigroup, and Bank of America all disappointed (after some nice quarterly runs).  

Fresh off its weaker quarterly earnings report, Goldman upset private clients even more by only offering Facebook shares (from a recent private offering) to foreign investors.  Meanwhile, fresh off its strong earnings report, GE stands to benefit from a new export deal reached between the US and China that is estimated to generate more than  $2 bln in revenue for the company over the next 10 years.  Likewise, China’s government approved the purchase of 200 planes from Boeing ($19 billion), a deal that could help support 100,000 US jobs.   The transaction game took on a global flavor as South African retailer Massmart approved Wal-Mart’s $2 bln bid for majority ownership.  Industrial & Commercial Bank of China became the first Chinese bank to acquire a US depository institution (Bank of East Asia’s US subsidiary) in what may represent the first of many opportunities for related expansion into the domestic financial marketplace.  While Prez O welcomed his Chinese counterpart to the White House for a “renewed effort of cooperation,” most analysts doubt much will be settled between the world’s two largest economies on the significant trade and currency issues (though the initial export agreement was a nice start). 

Oil traders took profits this week as crude supplies unexpectedly rose and China continued to take steps to halt its overheated economy, moves that could hinder future energy demand.  During the week, oil fell below $90/barrel.  Stocks were mixed with the Dow extending its winning ways, though the other major indexes (small-cap, in particular) gave back ground on profit taking as investors digested the array of earnings reports and news out of China about its economic growth.

Economic Calendar

Date	Release	Comments
January 17	MLK Day	Markets closed
January 19	Housing Starts (12/10)	Fell to its lowest level in over a year
January 20	Jobless Claims (01/15/11)	Better than expected weekly reading
	Existing Homes Sales (12/10)	Worst year since 1997
	Leading Economic Indicators (12/10)	Better than expected monthly increase
The Week Ahead
January 25	Consumer Confidence (01/11)
January 26	New Home Sales (12/10)
	Fed Policy Meeting Statement
January 27	Jobless Claims (01/22/11)
	Durable Goods Orders (12/10)
January 28	GDP (4th qtr 2010)

 

With Prez Hu Jintao being wined and dined in DC, the Chinese economy reported a surprisingly high 9.8%  growth rate in the 4^th quarter.  Despite the recent rate hikes and tighter banking regs, China continues to experience massive economic expansion and the inflation fears are running wild throughout many of the Asian emerging markets.  Not to be outdone, Brazil hiked its short-term interest rate by 50 bps after inflation in that Latin American emerging country rose to six percent in 2010.  At the opposite end of the spectrum, European finance ministers continue to debate ways to “bail out” ailing economies (Portugal, Spain, etc.) with Germany reluctant to approve more funds and reward governments for prior misbehaviors.  The German business sentiment index skyrocketed to an all-time high as related corporations continue to benefit from a weak euro (higher exports), despite the challenges faced by its EU brethren.  

 

Closer to home, a light week on the domestic calendar was highlighted by housing releases that revealed some signs of a rebound in the long-depressed sector.  Though housing starts fell to the lowest level in over a year, building permits rose in December, a sign that construction activity should pick up in the months to follow.  Existing homes sales jumped by over 12% last month, though 2010 was still the worst year for such sales since 1997.  On the labor front, claims for unemployment benefits fell in the latest week, a sign of slow (but steady) improvement.  In fact, the manufacturing sector actually created more jobs than it lost in 2010 for the first time since 1997 as companies are building and upgrading factories and the automakers, in particular, have resumed hiring.  Finally, the index of leading economic indicators rose in December, giving analysts and investors hope for the new year (though with a healthy dose of skepticism).  

On the Horizon…The Federal Reserve policymakers get together for the first time in 2011 and no one expects any move on the interest rate front (perhaps for the entire year).  However, Fed watchers will be curious to read the accompanying statement to interpret their current views on QE2 and the continued need for bond buying in the months ahead.  With the economy showing some signs of improvement, economists continue to debate (and debate and debate) the merits of the plan and even a few policymakers seemingly have expressed contrary opinions that it could be diminished should the expansion continue.  Thus far, Dr. Bernanke has given no indication that the program will not continue in full force as expected (sorry about the double negative), so the notes of the meeting remain widely anticipated.  Consumer confidence and the late week GDP release highlight the domestic economic calendar and the (favorable?) results of the holiday season should contribute to both reports.  Additionally, news out of China and the other emerging markets will be monitored closely as any steps to reign in global growth could dramatically impact the operations of domestic companies.  Finally, a few significant consumer-related companies announce earnings next week (McDonald 1/24, Starbucks 1/26, Procter & Gamble 1/27) and Chevron (1/28) kicks off the always crucial energy reports. 

 

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

 

The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities.  Past performance is not a guarantee of future performance.

 

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