How
has the weather affected the economy?
The major indices finished a choppy
week on a mixed note as stocks sagged on chilly economic data. While the
S&P 500 and Dow moved lower, the Nasdaq Composite posted its third weekly
gain on upbeat news in the tech sector. For the week, the S&P 500 lost
0.1%, the Dow slid 0.3%, and the Nasdaq added 0.5%.[1]
The unrelenting winter weather that has inundated large swaths of the country is also having a
chilling effect on the economy. Manufacturing fell drastically in January as
the harsh weather curtailed production in some parts of the country.[2]
The housing sector has also been affected, with existing home sales falling
5.1% in January, to the lowest level since July 2012.[3]
Construction on new houses plummeted 16.0% in January as the weather disrupted
groundbreaking activities.[4]
On the positive side, weekly
unemployment claims fell last week as fewer Americans filed new claims for
jobless benefits. This suggests that labor market conditions are improving,
despite two straight months of weak hiring and unseasonably cold weather.[5]
The seasonal chill may also affect
some corporate profits in the first quarter. While consensus estimates put first
quarter profits at a 5.0% increase for S&P 500 companies, expectations have
deteriorated dramatically; profits are now expected to be up an anemic 1.5%
across the board.[6]
That number could fall further as more companies reduce their earnings guidance
due to weather disruptions.
So far, the stock market has been
willing to look past these seasonal factors because investors hope to see a
spring back when the weather warms up. However, what if the polar vortex is
just exacerbating existing weakness? With so many seasonal factors affecting
the data, it’s hard to know how markets are going to react. We’ll likely
experience increased volatility as analysts struggle to see through the noisy
data, but it’s too soon to know for sure how the long-term trends will shake
out.
What lessons are there for long-term
investors this winter? Seasonal variations can play havoc with the best-laid
plans. Savvy professionals watch and wait for the noise to subside so that we
can look at the fundamentals underneath. As always, we’re looking for good
tactical investing opportunities in the volatility. If you ever have questions
about seasonality or other cyclical market factors, please give us a call;
we’re always happy to be a resource for you. Our number is 845-371-0101
ECONOMIC
CALENDAR:
Monday: Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI,
Consumer Confidence
Wednesday: J New
Home Sales, EIA Petroleum Status Report
Thursday: Durable Goods Orders, Jobless
Claims, Bloomberg Consumer Comfort Index, Janet
Yellen Speaks at 10:00 AM ET
Friday: GDP, Chicago PMI, Consumer
Sentiment, Pending Home Sales Index
HEADLINES:
Japan’s factory output rises. Japan’s industrial output likely grew
in January and inflation hovered near five-year highs, increasing hope that the
economic recovery continues. Japan’s factory output, which closely correlates
with Gross Domestic Product (GDP), grew an estimated 3.0% last month.[7]
Milk prices may skyrocket in March. Dairy analysts estimate that milk
prices could increase by as much as 60 cents in March, reaching their highest
prices ever. Shortages in cheese supplies are pushing demand for milk to record
levels; moreover, 2013 increases in feed costs caused farmers to cut back on
herd growth, compounding shortage issues.[8]
China manufacturing output sinks to 7-month low. Activity in China’s factories shrank
again in February, reinforcing concerns of a slowdown in the economic giant and
spooking Asian investors. While the Lunar New Year festival may have affected
data, it could foretell lingering weakness in the Chinese economy.[9]
Facebook bets $19 billion on WhatsApp. The social media giant will buy the
fast-growing mobile messaging startup for $19 billion in cash and stock in a
landmark deal. Facebook executives hope that the move will put them closer to
the growing mobile segment of social media users.[10]
“Keep your eyes on the stars, and
your feet on the ground.”
- Theodore Roosevelt
Did you know that for the past 12
months Gold is down 16.5%, however, ytd Gold is up 9%. (According to Page One
Financial)
It’s the economy ‘stupid’…
· Weather took a bite out of ISI's company surveys last week. And there was a notable package of weaker headline data, eg, housing starts. In addition, there was a notable package of weaker foreign data, eg, China PMI.
· However, the path of least resistance for US and foreign growth is still up, with the US mfg PMI and China bank loans both pointing the way last week. (ISI Group)
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