It was a somewhat quiet ‘in-between’ week for economic news, as most of the focus was on markets and an upcoming earnings season.
The Small Business Optimism Index, while not always in the news, became a catalyst for market activity early in the week, as it fell from 94.3 to 92.5 for March.
Import prices were higher than expected in March at +1.3% (although February’s gain was revised down to a negative number)—mostly due to oil and raw materials being priced higher. Other prices carried through and were higher as well, such as vehicles and vehicle parts and other finished consumer goods. The year-over-year increase was +3.4%, which ties into broader inflation readings.
The Fed Beige Book, a periodic report that provides data and anecdotes from the Fed’s regional bank about current conditions reiterated the ‘modest to moderate’ growth description used in February. Retail spending has improved, though, as has hiring activity—again, in keeping with recent publications from the last few months. Manufacturing in general is better, notably in high-tech equipment and vehicles. Building activity has increased in most areas, although it remains at very low levels; this description is in keeping with other construction reports.
Jobless claims ticked up to 380k for the April 7 week, and were revised up to 367k for the previous week—all-in-all, this moved the more relevant four-week moving average up a bit, but has really been unchanged since late January. Continuing claims, however, declined by 98k as did the rolls from extended/emergency programs, which is positive news.
Has a warmer-than-average winter helped matters? Probably. Warmer weather tends to affect construction most directly, as projects can begin earlier in the year, and also, more indirectly, provides a more favorable ‘climate’ for consumer activity (since they aren’t stuck behind snow drifts, they’re able to shop more—simplistic but somewhat accurate). So, our numbers in early 2012 were a better than expected to some degree, and some minor deceleration now isn’t too surprising.
The U.S. Consumer Price Index (CPI) gained +0.29% for the month of March, a number that was largely in line with expectations, while the core CPI number was up +0.23% (slightly higher than forecast). Year-over-year, this translates to a +2.7% gain on the headline and +2.3% on the core. Food and energy prices continue provide volatility, but the more extreme moves in the latter (mostly due to gasoline price contributions to the index) have decelerated from February—which may provide some relief from concerns high energy prices could derail the progress we’ve made in economic growth. Core prices have shown some signs of increase across the board—from used cars to clothing—so this bears watching. The PPI number for March was up +0.14%, which was about half of what was forecast, and core PPI gained +0.3%, which was in line with expectations.
The Univ. of Michigan Consumer household sentiment index didn’t change much for April, and was a bit lower than expected at 75.7. Readings for current conditions fell a bit, while future expectations improved. The long-term inflation expectation is 3.0% (which is about where it is now… often the most common guess of future figures is based on a bias of where we stand now).
We made a point of showing a historical chart of these sentiment numbers during last week’s advisor webinar, mostly for the purpose of demonstrating that consumer feelings generally have an inverse relationship to longer-term market performance. When clients don’t feel especially good about the economy (as they haven’t for the past several years), they certainly don’t feel like placing money into risk assets like stocks. However, when they finally do get to the point where exuberance takes over (often after everyone else has made their money in the ‘market,’) it is often too late. We’re far from that point, though, on a behavioral level.
Market Notes
| Period ending 4/13/2012 |
1 Week (%) |
YTD (%) |
| DJIA |
-1.61 |
5.95 |
| S&P 500 |
-1.97 |
9.63 |
| Russell 2000 |
-2.66 |
7.88 |
| MSCI-EAFE |
-1.15 |
6.32 |
| MSCI-EM |
-0.98 |
12.02 |
| BarCap U.S. Aggregate |
0.25 |
1.11 |
| U.S. Treasury Yields |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/31/2011 |
0.02 |
0.25 |
0.83 |
1.89 |
2.89 |
| 4/6/2012 |
0.07 |
0.32 |
0.89 |
2.07 |
3.21 |
| 4/13/2012 |
0.08 |
0.27 |
0.86 |
2.02 |
3.14 |
Markets experienced some of the best and worst days of the year last week, the second negative result in a row, as markets digested mixed employment numbers, worried once again about European debt and prepared for a likely interesting earnings season for Q1. Overall, stocks were down although U.S. equities outperformed developed markets and large-caps continue to dominate small-caps this year.
In the U.S., materials and consumer discretionary stocks led with more tempered losses, while financials and energy lagged by the largest amounts. From an early earnings standpoint, Alcoa, Google and JPMorgan beat estimates. We expect another interesting earnings season, with quite a few large members of the S&P reporting this coming week.
Emerging markets ended up with the best relative performance, however, led by China and other nearby Asian stocks. China published macro data for March which showed that while Q1 GDP grew less than expected (at 8.1% versus 8.3% anticipated), industrial production and other measures rose, which helped alleviate some ‘soft landing’ concerns.
With risk assets pulling back and lower rates, bonds outperformed on the week. Foreign developed and emerging market debt outperformed U.S. debt.
In commodities, gold had a decent week considering the risk-off environment, while oil was down a few dollars.
Have a good week.
Karl Schroeder, RFC, CSA, AACEP
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611
Sources: FocusPoint Solutions, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Reuters, Schroder’s, Standard & Poor’s, U.S. Federal Reserve, Wells Capital Management, Yahoo!. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Schroeder Financial Services, Inc. is a registered investment advisor.