Weekly Recap & Outlook – 01.13.12

Tower Private Advisors

Below

  • France, Italy, and other countries downgraded by Standard & Poor’s
  • 4th quarter earnings season commences
  • Increasing number of workers willing to voluntarily quit their jobs

Capital Markets Recap

 

Top Stories

  • It was leaked–as it was for the U.S.–that France would lose its AAA credit rating, dropping to AA+. Apparently, Standard & Poor’s gives a 12-hour advance notice to governments of countries being downgraded. As someone from brokerage firm Miller Tabak put it, what politician can keep news like that quiet. This shouldn’t have surprised markets much. When the U.S. was downgraded, it was roundly noted that any decision not to downgrade France, which looks worse than the U.S., would be assurance that the U.S. downgrade was politically motivated. Italy drops to BBB+.
  • Apple said the iPad3 will have better screen resolution, have a faster processor, and be able to work on next-generation wireless networks. It’s supposed to go on sale in March.
  • Raymond James is buying the brokerage house Morgan Keegan from Regions Financial, as that financial institution rushes to shed assets.
  • Record high correlations amongst stocks lead to, in 2011, funds trailing the S&P 500 by the widest margins since 1997.
  • The fourth-quarter earnings reporting season kicked off this week, with, as usual, Alcoa leading the way. The company reported its first quarterly loss since 2009. So, what’d the stock do? Well, naturally, it rose.

  • The earnings season begins in earnest next week (just 4 companies reported this week) and then 123 the following week. I’ve seen data that suggests that analysts are overly pessimistic with respect to earnings. That results in a lowered bar and might allow for some nice earnings surprises.

This Week

The NFIB released its Small Business Optimism index this week. It rose from November’s level (92.0) to 93.8 in December. While the index has rebounded to exceed pre-recession levels, it remains about 5% below the average level, as can be seen below.

Here’s a bit of happy news. Every month, the Labor Department releases its JOLTS (Job Openings Labor Turnover Survey.) It reports on job openings and job separations. While job openings remained at 3.2 million in November, separations rose to the highest level since August 2010. Part of that was a result of an uptick in the Layoff Rate, the rate of Voluntary Quits rose to its highest level since September 2008. Voluntary quits are usually a sign of confidence in an improving labor market. The index, however, has only existed since late 2006. Still, we shouldn’t look a gift horse in the mouth.

Initial Jobless Insurance Claims rose quite sharply this week, from an upward-revised 375,000 to 399,000. According to a Bloomberg news story, that raises fears that temporary holiday hiring may be reversing.

Hiring by package delivery companies and retailers during the holidays to meet demand for gifts may now be giving way to an increase in dismissals. At the same time, claims figures are subject to greater volatility during this time of year, as the government has trouble adjusting the data for the seasonal swings in employment.

So, smooth the data! Here it is with a mid-2011 regressed trend (still heading down), a 1-month smoothing (heading up), a 2-month smoothing, and a 3-month smoothing (heading down, but just slightly.) It may be difficult to adjust, but so far the indications seem to be that the trend will continue.

The week’s last economic release was the University of Michigan Consumer Confidence index. With a jump to 74.0, it’s back to May 2011 (74.3) levels and isn’t that far from the post-recession high of 77.5. Still, taking a look back at the four prior recessions (1980, 1982, 1990, 2001), the current reading is only above the average post-recession reading of the 1980 recession.

Next Week

Key indicators to watch

  • Empire State Manufacturing index (Tuesday) – January
  • Producer Price Index (Wednesday) – December
  • Industrial Production (Tuesday) – December
  • Capacity Utilization (Tuesday) – December
  • Consumer Price Index (Wednesday) – December
  • Initial Jobless Claims (Thursday) – weekly
  • Philadelphia Federal Reserve index (Thursday) – January

Housing indicators

  • MBA Mortgage Applications (Tuesday) – weekly
  • NAHB Housing Market Index (Wednesday) – January
  • Housing Starts (Thursday) – December
  • Building Permits (Thursday) – December
  • Existing Home Sales (Friday) – December
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