Dow closing in on 13,000 with better than expected economic news
After a week of mixed performance, major indexes locked in weekly gains on Friday, buoyed by positive economic data. The S&P 500 closed at its highest level since 2008, having gained 8% so far this year. The Dow increased about 0.3% this week and flirted with its highest close since May 2008, while the Nasdaq added 0.4% to close at its highest level since December 2000!
Positive economic numbers released this week included an unexpected boost in consumer confidence in February as Americans continue to be optimistic about economic growth. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75.3 from 75 in January, sustained by gains in the job market. Optimistic consumers tend to spend more and invest more – two things that are very good for economic growth.
Additional positive news came out of the housing market as sales of existing U.S. homes rose 4.3% in January, sustained by record-low interest rates and bargain prices. At the same time though, sales of new homes fell in January after four straight months of gains as more Americans purchased previously-owned homes. According to the Commerce Department, new-home sales dropped 0.9% from December, falling short of forecasted growth. However, since hiring is on the rise and existing homes are selling briskly, we expect to see continued improvements in the overall housing market as stockpiles are depleted and consumers keep taking advantage of low mortgage rates.
Unfortunately, gas prices continued their rise this week, increasing 2.7 cents to a nationwide average of $3.67 a gallon on Saturday. Tensions with Iran and Syria caused crude oil to hit $109.77 at Friday’s close; however, consumers are still responding relatively well. In related news, St Louis Federal Reserve President James Bullard made a statement Friday expressing confidence that since Americans adjusted to high gas prices in 2008, the rising prices we now see are unlikely to derail the recovery. We hope he is correct in this assumption.
Overall, despite some midweek market turbulence fueled by concerns over Europe and high gas prices, the week ended well, with positive economic news boosting confidence that the recovery will continue. Although a sustained rise in gas prices could put a damper on future growth, most economists remain cautiously optimistic, and so do we.
ECONOMIC CALENDAR:
Monday: Pending Home Sales Index, Dallas Fed Manufacturing Survey
Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: GDP, Chicago PMI, Ben Bernanke Speaks at 10:00 AM ET, EIA Petroleum Status Report, Beige Book
Thursday: Motor Vehicle Sales, Jobless Claims, Personal Income and Outlays, ISM Manufacturing Index, Construction Spending
Data as of 2/24/2012 1-Week Since 1/1/2012 1-Year 5-Year 10-Year
Standard & Poor's 500 0.33% 8.60% 4.57% -1.18% 2.53%
DOW 0.26% 6.26% 7.58% 0.53% 3.02%
NASDAQ 0.41% 13.77% 8.25% 3.57% 7.19%
MSCI EAFE 1.16% 11.35% -5.61% -3.65% 3.86%
10-year Treasury Note (Yield Only) 2.01% N/A 3.44% 4.68% 4.83%
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.
HEADLINES:
The Federal government could open the Strategic Petroleum Reserve to curb rising oil prices. Tapping the SPR often comes up when gas prices soar and politicians feel pressured into action. Opening the reserve would quickly lower prices; however, doing so might leave the country open to future shocks, meaning that it is unlikely to be opened unless a severe supply disruption occurs.
Greece launched a sovereign debt swap worth €107 billion- designed to restructure its debt load and stave off default. The swap will allow investors to take a 53.5% loss on the face value of their government bonds – which is much less than the actual loss, estimated at between 73-74%. It is hoped that the debt swap will lower Greece’s overall debt from 160% of GDP to 120% by 2020, paving the way for a return to solvency.
The Federal Reserve bought $1.9 billion in long-dated bonds as part of a bond-buying program designed to support the economy by keeping long-term interest rates low. The Fed plans to purchase a wider variety of bond maturities next week.
A prominent economist is bearish on the economy. Despite the positive economic indicators, Lakshman Achuthan believes the economy is headed for a new recession. However, Achuthan's views are not widely accepted; a December CNNMoney poll of economists cut the double-dip recession risk down to 20%, citing job growth, increased retail spending, and higher consumer confidence.
QUOTE OF THE WEEK:
‘The truth is, if one of us succeeds, we all do’ Dr. Wayne Dyer
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