Resilient
Markets Shrug Off Concerns
Markets
stumbled early in the week on concern that Italy’s deadlocked election results
might threaten Europe’s economic recovery. However, they picked up steam later
in the week, bolstered by strong economic data. While Friday’s sequestration
deadline weighed on investor nerves, markets still ended the week in the black,
with the S&P 500 gaining 0.17%, the Dow gaining 0.64%, and the Nasdaq
gaining 0.25%.[1]
As
many expected, the sequestration deadline came and went on March 1,
demonstrating Washington’s unwillingness to compromise on either side of the
issue. With no deal in sight, President Obama formally ordered the start of $85
billion in government spending cuts Friday evening. Markets shrugged off the
sequestration deadline, perhaps trusting that lawmakers will pull themselves
together before the full weight of the cuts are felt. Although spending cuts
have been ordered, it will take time for the gears of government to turn, and
the major effects may not be felt until early April, when the first furloughs
begin.
Fed
Chairman Ben Bernanke made several speeches last week with a clear message: The
Fed will keep long-term interest rates low to encourage economic growth.
Despite some dissension in the ranks, the Fed will continue its program of
loose monetary policy while closely monitoring financial markets to curb
inflation risks.[2]
Also
making headlines last week, the results of Italy’s election show a close split
that leaves the country without a plausible governing coalition. Voters showed
their frustration with austerity measures and lack of economic growth by splitting
their votes among three politicians who are unlikely to hold a political
mandate strong enough to confront Italy’s worst recession since WWII. In order
to stave off additional economic trouble, Italians must be willing to accept
serious structural changes in the future.[3]
Investors
reacted positively to a number of economic reports showing that the U.S.
economy is doing well. Despite new payroll taxes, consumer spending grew a
modest 0.2% in January;[4]
this is great news because consumer spending often drops after the holidays as
Americans tighten their belts. In the housing sector, sales of new homes
increased nearly 16% to the highest level since July 2008. At the same time,
sales of existing homes has fallen but the increasing demand for new homes has
added momentum to the housing recovery.[5]
ECONOMIC CALENDAR:
Tuesday: ISM Non-Mfg. Index
Wednesday: ADP Employment Report, Factory Orders,
EIA Petroleum Status Report, Beige Book
Thursday: International Trade, Jobless Claims, Productivity
and Costs
Friday: Employment Situation
HEADLINES:
Manufacturing jumps in February. U.S. manufacturing grew last month at
the fastest pace in 20 months, a good sign for the economy.[6]
Pope Benedict XVI bids farewell. In the first papal retirement since
the 1400’s, Pope Benedict stepped down on Thursday. Cardinals will convene in
Rome to elect the next pope from among their number.[7]
Americans see monthly income drop. Personal income declined in January by
the largest amount in 20 years, hit by a one-two punch of unusually high
December income and January’s new payroll tax. Monthly income was high in
December as companies paid out early dividends to avoid tax hikes. The new
payroll tax took an additional toll, as most workers will pay an additional 2%
in taxes this year.[8]
Consumer confidence jumps in February. Consumer confidence moved higher for
the second consecutive month, according to initial readings. The rebound
suggests that despite some uncertainty around budgetary issues, Americans are
adjusting to smaller paychecks and are still feeling optimistic about the
future.[9]
QUOTE OF THE WEEK:
“Imagination is more important than
knowledge.” -Albert Einstein
Share the Wealth of
Knowledge!
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[1]
http://www.briefing.com/investor/markets/weekly-wrap/weekly-wrap-for-february-25-2013.htm
[2]
http://www.usatoday.com/story/money/business/2013/03/02/bernanke-defends-federal-reserve-interest-rates/1958587/
[3]
http://www.washingtonpost.com/opinions/italian-elections-reveal-frustrations-among-electorate/2013/03/01/ed35f2ca-82b3-11e2-8074-b26a871b165a_story.html
[4]
http://news.yahoo.com/us-consumer-spending-0-2-percent-january-133724544--finance.html
[5]
http://news.yahoo.com/us-home-sales-jump-highest-4-years-150524305--finance.html
[6]
http://news.yahoo.com/jump-factory-growth-lifts-hopes-us-economy-215549741--finance.html
[7]
http://online.wsj.com/article/SB10001424127887324662404578331822581430246.html
[8]
http://money.cnn.com/2013/03/01/news/economy/income-spending-saving/
[9]
http://www.bloomberg.com/news/2013-03-01/u-s-stocks-trim-loss-on-consumer-confidence-manufacturing-data.html
