Is the market correction over?
THE MARKETS:
Is the correction over? That is the question on most investors’ mind after the market has now advanced for the second straight week. After sinking slightly more than 8% in three weeks, the S&P 500 has now advanced 5% since bottoming two weeks ago. The rebound gained steam last week as inflation statistics remained benign and the Federal Reserve unexpectedly hiked the discount rate.
The market got off to a running start as a strong earnings report by Barclays Bank lifted markets worldwide. It was not only the earnings report that gave the markets a boost, but what Barclay’s president Bob Diamond said about the economy. He said the recovery is accelerating in the U.S. and around the world although Europe was still progressing slowly. “We see very strong signs of an accelerated recovery as we move further into 2010,” he said.
Meanwhile, across the pond there were continued discussions about the Greek crisis. A meeting of European Union (EU) finance ministers concluded with tough talk and a proposal that would include an advance of money to Greece from the EU in order to allow Greece time to let the austerity measures work. That proposal, however, assumes that Greece will actually take steps on their own to shrink their budget deficit, which seems like a tall order for Greek officials who have shown very little in the way of fiscal responsibility in the past. Greece announced last week that they are going to try and sell €5 billion ($6.8B) in 10-year bonds this week. If the sale is successful, the pressure on the EU and the euro would diminish, at least for the moment. If the sale fails though, the EU will have to devise a rescue plan very quickly as a failure would seriously pressure the euro.
Here in the U.S. inflation remains a non-issue currently with consumer prices edging up just 0.2% in January, while core prices which exclude food and energy costs fell 0.1%. It was the first decline in core consumer prices since 1982. Meanwhile, the Leading Economic Index (LEI) rose 0.3% in January, for the 10th consecutive gain, suggesting economic conditions should continue improving in the near-term.
The big event for the week was the Fed’s surprise 0.25% hike in the discount rate from 0.50% to 0.75% on Thursday. The Fed’s decision surprised the market, but it really should not have given Fed Chairman Bernanke’s comments the week before in which he said, “Before long, we expect to consider a modest increase in the spread between the discount rate and the target federal funds rate.” Regarding this increase, the Fed’s statement said, “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.” In addition, several Fed policymakers reiterated that position including Atlanta Federal Reserve President Lockhart who said “I would not interpret this action as a tightening of monetary policy or even a sign that a tightening is imminent. Rather, this action should be viewed as a normalization step.” In addition, New York Fed President Dudley said the Fed's pledge to keep benchmark rates low for an extended period of time “is still very much in place.” So while this is the Fed’s first step, it will likely be some time before they hike the fed funds rate with the unemployment rate still hovering near 10%.
Key things we’ll be watching this week:
Tuesday – Consumer Confidence
Wednesday – New Home Sales
Thursday – Initial Jobless Claims, Durable Goods Orders
Friday – GDP, Existing Home Sales
Data as of 02/19/10
HIGHLIGHTS:
The Mortgage Bankers Association announced the results of its quarterly delinquency survey on Friday, which contained a glimmer of hope: While the percentage of mortgages somewhere in the foreclosure process grew, the percentage of home loans delinquent -- but not in foreclosure -- actually shrunk on a seasonally adjusted basis in the fourth quarter, compared with the third quarter.
Some 152 million people have watched some part of the Vancouver Olympics over the first seven days of the games, NBC Sports said Friday, and the telecasts have had the most average viewers since the 1994 Winter Games.
The dollar touched an eight-month high against major currencies Friday, supported by the Federal Reserve's surprise move to increase its discount rate.
Rates for 30-year home loans edged lower for the second straight week, a report said Thursday, but remained above last year's record lows. The average rate on a 30-year fixed rate mortgage was 4.93% this week, down from 4.97% a week earlier, mortgage finance company Freddie Mac said.
States underfunded their pension plans and retiree health benefits by $1 trillion in 2008, a new report says. The report, released Thursday by the Pew Center on the States, says 21 states had less than 80% of the money they needed to pay for future retiree pensions. In 2006, that was true of 19 states.
Ken gives the market report every morning on WRCR 1300 AM Radio around 9:15 am. and is a daily guest on the Steve and Charlie Morning Show. www.wrcr.com
Ken is also on WHUD 100.7 Fm every Tuesday morning around 8:10 am on the very popular Mike & Kacey morning show on WHUD. www.whud.com
The Markets:
For the fourth straight week the major indices ended negative, this time mostly because of European geopolitical concerns. Although deep into earnings season, it was the credit concerns in Portugal , Italy , Ireland , Greece , and Spain that shook investor confidence. Wall Street's concern is that they may begin to default on some of their debt, and this sent investors looking for less risky investments like the U.S. Dollar and U.S. Government bonds. By the time the closing bell shut down markets for the week, the S&P 500 index lost 0.7% and the Dow average was down 0.6%, even after the markets rebounded from steep losses Friday afternoon.
So far, the S&P's decline of 7.57% since January 19th is the steepest of the four corrections since the bull market began last March. The other three were 5% in May, 7.1% in July, and 5.6% in October.
The losses for the week didn't tell the whole story though, with profits beating expectations, and a drop in unemployment also grabbing the headlines. With 314 companies, or 63% of the S&P 500 companies having reported 4Q numbers, earnings are on track to have risen 206% versus a year ago and revenue to have gained 7%. That being said, if you strip out the financial sector, earnings are up only 16% versus a year ago, and revenue is expected to have risen just 2%. Still, the results so far have been mostly positive, with 74% of companies beating earnings estimates and 71% beating revenue estimates.
As far as unemployment, the news was mixed with the household survey's headline unemployment rate dropping to 9.7% while, at the same time, the US Labor Department showed a loss of 20,000 jobs for January against consensus expectations of a small increase. On a positive note, the average workweek increased slightly which is commonly viewed as a precondition of future employment growth as employers get more out of current workers before hiring others.
Key things we'll be watching this week:
Tuesday - Wholesale Inventories
Wednesday - Treasury Budget
Thursday - Initial Unemployment Claims, Retail Sales
Highlights:
Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world's reserve currency. Traders have spurned European stocks in favor of shares elsewhere for a record 19 straight weeks, "clearly hurting" the currency by draining a net $13 billion from the market, said Geoffrey Yu, a UBS AG analyst.
Toyota Motor Corp. is making "field remedy" kits to fix flawed accelerator pedals that caused a recall of 2.3 million U.S. vehicles and aims to deliver them to dealerships in the nation starting late this week.
The Recovery Board reported late Saturday that from October through December, 599,108 jobs had been directly created by stimulus money. The jobs come from money awarded through contracts, grants and loans. For perspective, these jobs are derived from about $54 billion in spending, according to the Administration, and as the White House pointed out Saturday, that is "only" about one-fifth of all spending and tax relief doled out in 2009.
The White House will predict a $1.6 trillion U.S. budget deficit in the 2010 fiscal year, a fresh record and the biggest since World War II as a share of the economy, a congressional source told Reuters on Sunday.
Please feel free to call me at 845/371-0101 or email me at kmahoney@auroracapital.com.
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Mr. Mahoney is a registered broker with Aurora Capital, LLC, an SEC registered broker-dealer and member FINRA and SIPC. Aurora Capital Brokerage, trades cleared by Legent Clearing.
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The Markets:
For the fourth straight week the major indices ended negative, this time mostly because of European geopolitical concerns. Although deep into earnings season, it was the credit concerns in Portugal, Italy, Ireland, Greece, and Spain that shook investor confidence. Wall Street's concern is that they may begin to default on some of their debt, and this sent investors looking for less risky investments like the U.S. Dollar and U.S. Government bonds. By the time the closing bell shut down markets for the week, the S&P 500 index lost 0.7% and the Dow average was down 0.6%, even after the markets rebounded from steep losses Friday afternoon.
So far, the S&P's decline of 7.57% since January 19th is the steepest of the four corrections since the bull market began last March. The other three were 5% in May, 7.1% in July, and 5.6% in October.
The losses for the week didn't tell the whole story though, with profits beating expectations, and a drop in unemployment also grabbing the headlines. With 314 companies, or 63% of the S&P 500 companies having reported 4Q numbers, earnings are on track to have risen 206% versus a year ago and revenue to have gained 7%. That being said, if you strip out the financial sector, earnings are up only 16% versus a year ago, and revenue is expected to have risen just 2%. Still, the results so far have been mostly positive, with 74% of companies beating earnings estimates and 71% beating revenue estimates.
As far as unemployment, the news was mixed with the household survey's headline unemployment rate dropping to 9.7% while, at the same time, the US Labor Department showed a loss of 20,000 jobs for January against consensus expectations of a small increase. On a positive note, the average workweek increased slightly which is commonly viewed as a precondition of future employment growth as employers get more out of current workers before hiring others.
Key things we'll be watching this week:
Tuesday - Wholesale Inventories
Wednesday - Treasury Budget
Thursday - Initial Unemployment Claims, Retail Sales
Highlights
Proud residents of New Orleans took to the streets, threw beads from the balconies of bars in the French Quarter, and cheered out windows Sunday night as the New Orleans Saints overcame the Indianapolis Colts to win their first Super Bowl, an outcome that just a few years ago seemed improbable both for the team and the city it calls home.
Toyota's U.S. chief Yoshimi Inaba is on the hot seat. When he took over the North American operations of Toyota Motor Corp. last year, the veteran executive was charged with turning around the company's largest unit by restoring it to profitability. Now the 63-year-old Mr. Inaba is preparing for a job he never imagined: testifying before Congress to explain Toyota's safety troubles.
President Barack Obama, seeking to give new momentum to his languishing health-care legislation, said he would sit down with Republican and Democratic lawmakers this month to exchange ideas on an issue that has deeply divided the parties. With the GOP united against the Democratic bill, Mr. Obama said Sunday he would ask Republicans "to put their ideas on the table." The half-day meeting will be February 25th and broadcast live, the White House said.
Federal Reserve Chairman Ben Bernanke will begin this week to lay out a blueprint for a credit tightening, to be followed once the Fed decides the economy has recovered sufficiently. The Fed is still at least several months away from raising interest rates or beginning to drain the flood of money it poured into the financial system in 2008 and 2009. But looking ahead to when the economy is strong enough to warrant tightening credit, officials have been discussing for months which financial levers to pull, when to start and how best to communicate their intent