Markets Continue Strong on Solid Economic Data

 

Written Commentary:

For the week of Monday, January 16, 2012 through Friday, January 20, 2012

• Standard & Poor’s 500 Index: 2.04%
• Dow Jones Industrial Average: 2.40%
• NASDAQ Composite: 2.80%

As, fourth quarter earnings continue to roll in, there is a lot of positive news. Year-to-date, the S&P 500 has risen roughly 4.5%. Leading the charge are the materials and financial sectors. Utilities have fared the worst so far. However, we believe that the financial sector still has a way to go before it recent gains are justified.  Wells Fargo has been able to grow its mortgage lending unit. As earnings season continues, we feel that the markets will continue to rise.

Economic data released this week showed that inflation has remained flat. However, energy could be volatile this year if economic growth takes off or the situation in the Middle East worsens. The housing market continues to remain weak. Jobless claims fell to the lowest level in over six years last week.

Economic News

• Producer Price Index
  • The PPI edged down 0.1% for the month of December, dropping two out of the past three months.
  • The finished energy goods index continued its decline, while the finished foods index changed course leading to the drop in PPI.
  • Input prices fell as well, which means future declines in the PPI are possible.
• Consumer Price Index
  • The CPI was unchanged for the month of December, which met forecasts, but was under analysts’ estimates of a slight rise.
  • For the third month, headline inflation has not posted a positive reading.
  • Similar to PPI, falling energy prices pushed the energy index down, keeping inflation flat.
  • Core CPI inched up 0.1%, while vehicle and apparel prices fell.
  • For now, expectations remain that inflation has peaked and prices should not rise rapidly.
• Housing Starts
  • For the month of December, housing starts slowed falling 4.7% from November.
    • Permits also fell in December.
  • The seasonally adjusted rate for the year is 657,000 units.
  • The multifamily segment lead the decline enough to more than offset the slight increase in single family new home starts.
  • We believe the housing market will remain depressed for some time.
• Jobless Claims
  • Initial claims fell to 352,000 from 402,000, which was the biggest drop in more than six years.
    • However, several states used estimates because of the Martin Luther King holiday-shortened week.
  • Claims from two weeks ago were revised higher to 402,000 from 399,000.
  • Continuing unemployment claims fell by 215,000 to 3,432,000.
  • This is the lowest reading since September 2008.

Earnings News

• Bank of America Corp.  (NYSE: BAC)
  • Bank of America finally made it back into the black posting a profit in the fourth quarter.
    • Some one-time items and asset sales helped the bank.
    • Net Income was $1.58 billion, versus a loss of $1.6 billion.
    • Revenue from investment banking, sales and trading decreased.
    • Total loans fell from $932 billion to $926 billion in the third quarter.
  • BAC has been reducing risky assets and building capital levels.
• Wells Fargo & Company (NYSE: WFC)
  • Wells Fargo reported positive news for the quarter, growing profit by 20%.
  • Earnings rose to $4.11 billion, beating estimates and last year’s $3.41 billion.
  • Revenue fell from $21.49 billion to $20.61 billion, a 4% drop.
  • The growth was due to new mortgage growth of 35% during the third quarter.
  • Shares rose 0.7% on the news.

Interest Rates

• The two-year Treasury inched up one basis point to 0.23%, remaining under 0.30% since August.
• The five-year Treasury increased three and a half basis points to 0.83%, continuing to stay under 1.0%.
• The 10-year Treasury rose six basis points to 1.92% edging closer to 2.0%.
• The 30- year Treasury gained seven basis points to 2.98%, still failing to pierce the 3.0% mark.

Disclosures

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