The last week of the year is traditionally one of the lightest, so we’re featuring an abbreviated economic report this week.
(+) New home sales gained +4.4% for November to 377k units, which beat analyst predictions of +3.3% growth. Over the year, this metric is up +15%, which is in line with other positive housing metrics.
(+) Pending home sales jumped +1.7% for November month-over-month, which beat the estimate of +1.0%. The Northeast and West regions were responsible for the majority of the gains, while the South and Midwest ended up with flat results. These figures are right in line with a trend of positive housing data.
(+) The Case-Shiller home price index for October rose +0.7%, which bested the forecasted +0.5% gain and moved to a +4.3% gain year-over-year (the index has risen almost every month this year). This index keeps beating expectations—led by over +1% showings in Las Vegas, San Diego and Atlanta during the month, while Chicago and Boston posted slight declines. The only negative is that it’s old news—over a month old by the time we see the results.
(-) Consumer confidence for December dropped to 65.1, which was quite a bit lower than the expected 70.0 figure. The Conference Board sponsor blamed the fiscal cliff as the primary source for respondent pessimism this month, noted in the poor ‘future expectations’ reading. The present situation, however, did improve for the fifth straight month. The labor piece, which measures how plentiful jobs appear to be, was better but still extremely negative relative to history.
(-) The Richmond Fed Index came out with a +5 reading, which was weaker than the +8 expected and the +9 November figure. The composition was mixed, with shipments and new orders coming in lower, as was the employment segment. In line with other surveys, respondents seemed gloomier about future prospects, which may connected to fiscal cliff concerns.
(+) By contrast, the Chicago PMI came in at 51.6—better than the 51.0 expected by consensus. Future new orders were much stronger than in November, but the employment index component declined soundly. Production and other components were mixed, although fiscal cliff concerns certainly weighed on sentiment.
(0) On the employment side, initial jobless claims for the Dec. 22 ending week fell to 350k, which was lower than the expected 360k figure. Continuing claims for the Dec. 15 week were reported as 3,206k—right as expected. This would normally be a positive, but the DOL had to estimate results from 19 states due to holiday closures, so this release is less reliable than normal.
Now, the fiscal cliff. We’re not going to attempt a rehash of the incredible amount of news coverage on the topic from the last few weeks, but can put an investment perspective on things. We have been inundated with opinions, discussions and assumed outcomes from various mutual fund firms, economists and political strategists over recent months. Some of this content is worthwhile, but much is redundant and offers little new insight. The consensus opinion from firms we feel provide better depth of thought is that the extreme negative outcomes from the cliff are likely to be avoided. (This is not to mention that the overall effects are gradual in nature, as opposed to a ‘switch’ being flipped with all going to hell in a handbasket on Jan. 1). Instead, it seems likely that some type of negotiated compromise will be reached…if not by New Year’s Eve, then certainly by early in 2013. The benefit of a 2013 agreement is the politically more tenable outcome that allows many Republicans to maintain a pledge of not ‘raising taxes’ (for more information, google the name ‘Grover Norquist’). How does this work? If the Bush tax cuts are allowed to expire and rates rise by mandate on Jan. 1 to the previous level, any agreed-upon compromise would likely result in a ‘tax cut’ of some sort. Convoluted, but not unheard of in Washington.
The debt ceiling (again) is another upcoming deadline in January. This brings flashbacks of 2011, and the political gridlock that led to an S&P downgrade of U.S. debt based on a lack of conviction in solving the problem. This may prove to be more disconcerting to markets than the ongoing fiscal cliff concerns of late.
Market Notes
|
Period ending 12/28/2012 |
1 Week (%) |
YTD (%) |
| DJIA |
-1.92 |
8.84 |
| S&P 500 |
-1.90 |
14.07 |
| Russell 2000 |
-1.79 |
13.98 |
| MSCI-EAFE |
0.00 |
17.45 |
| MSCI-EM |
1.16 |
15.15 |
| BarCap U.S. Aggregate |
0.19 |
4.32 |
| 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 |
| 12/21/2012 |
0.06 |
0.26 |
0.75 |
1.77 |
2.93 |
| 12/28/2012 |
0.01 |
0.27 |
0.72 |
1.73 |
2.88 |
Domestically, stocks were weak on the short Holiday week—mostly due to poor headlines regarding the fiscal cliff negotiations in Washington.
In the S&P, Materials and Financial stocks outperformed with the smallest losses, while energy and utilities underperformed on the week. Large-caps and small-caps were largely similar, while foreign stocks ended up stronger than domestics.
The EAFE was flat on the week, although the Japanese component gained ground at the expense of European stocks. Generally, the new regime in Japan has been received positively, which has resulted in Japanese stock gains in recent weeks—the premise being that added promised stimulus should result in better economic/profit growth. It has also caused the Yen to drop significantly, due to fears of potential inflation and views of the currency as somewhat overvalued currently.
Treasury bonds performed well, inversely to equities in a risk-off week. Long bonds gained the most ground, and credit was up slightly. Foreign bonds were down slightly in the slow week.
Real estate was down in keeping with equities, with foreign REITs outgaining domestic issues. Commodity markets were mixed on the week. Energy was up roughly 1.5% with higher oil prices, and was the best-performing sector, while agricultural contracts lost a percent, as the worst performer.
Have a good week – and we wish all of you a happy, healthy and prosperous New Year.
Karl Schroeder, RFC
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611
Sources: FocusPoint Solutions, Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Thomson Reuters, Schroder’s, Standard & Poor’s, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. 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.
Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.