The economy continues to send very mixed signals. The market screams like a scolded dog. The more things change, the more they stay the same. Welcome to our weekly Sense on Cents Week in Review. I will provide a streamlined recap of the major economic news and the month-to-date market moves. Let’s navigate.
1. Manufacturing Index: 55.9 vs expectation of 54.8, a positive
2. Pending Home Sales: 96 vs 114.3 prior reading, a big negative
3. Fed Minutes: mixed economic review with debate about continuing quantitative easing via the purchase of mortgage securities.
4. Unemployment: a decidedly weak report, see all details in Unemployment Report: January 8, 2010
The economy continues to have major problems in housing and employment as it attempts to adapt to the reality of a world awash in debt. How did the markets respond? As the economy is awash in debt, the markets are awash in cash and investors are scrambling to put it to work.
The statistics provided are the weekly close and the month-to-date returns:
$/Yen: 92.65 vs 93.00, -.38%
Euro/Dollar: 1.4405 vs 1.323, +.6%
U.S. Dollar Index: 77.49 vs 77.86, -.48%
Commentary: the overall U.S. Dollar Index weakened slightly given the generally weak domestic economic data.
Oil: $82.94/barrel vs $79.62, +4.2%
Gold: $1139/oz. vs $1098, +3.7%
DJ-UBS Commodity Index: 142.4 vs 139.2, +2.3%
Commentary: cold temperatures across the country are definitely supporting the oil market. Commodities, in general, continue to gain strength from global currency concerns.
DJIA: 10,618 vs 10, 428, +1.8%%
Nasdaq: 2317 vs 2269, +2.1%
S&P 500: 1145 vs 1115, +2.7%
MSCI Emerging Mkt Index: 1016 vs 989, +2.7%
DJ Global ex U.S.: 206.4 vs 201.09, +2.6%
Commentary: lot of green on this board as cash on the sidelines poured into the market. People should be aware that money directed to 401-Ks and IRAs is typically allocated in the first few weeks of the year. That money always provides a nice boost to the market.
2yr Treasury: .98% vs 1.14%, -16 basis points or .13% (rates down, bond prices up)
10yr Treasury: 3.84% vs 3.84%, unchanged
COY (High Yield ETF): 7.00 vs 6.89 +1.6%
FMY (Mortgage ETF): 18.25 vs 18.24, unchanged
ITE (Government ETF): 57.35 vs 57.07, +.49%
NXR (Municipal ETF): 14.65 vs 14.64, unchanged
Commentary: bonds were either flat or positive on the week depending on the sector. Same song: cash, cash, and more cash in institutional accounts is pouring into the market. The steepening of the yield curve is an indication the Fed will remain on hold. Is the steep slope indicating a rebound in the economy, an increase in inflation, the negative long term impact of our massive fiscal deficit? Or all of the above?
The calendar may have changed, but little else in terms of the economic challenges facing us. Wall Street and Main Street are in different worlds. Where and when will these two worlds meet?
When and how will the Fed withdraw stimulus and support for the market? How will that play out? How will it be executed? Are we in a bubble? Can we gently ease the air out of the balloon? All these questions are historic in nature.