Monday, February 2, 2015

MMRecap for February 2nd
The final week of January was loaded with reports: some good, some not so good. But there were no reports last Monday.
Stocks closed up on Monday, although the gains were minimal. The Dow gained 6.10 points, the Nasdaq was up by 13.88 points and the S&P 500 inched up 5.27 points. The 10-year Treasury yield bumped up 2 basis points to close at 1.83%.
On Tuesday there were several disappointing reports. Durable goods didn’t come close to meeting expectations. Sales of durables, expensive items meant to last three or more years, were down 3.4%; and durables excluding transportation (planes, trains and automobiles) dropped 0.8% -- far below estimates and a huge disappointment for the markets. The Case-Shiller 20-city index of November housing prices in the nation’s 20 largest cities fell to 4.3%, but didn’t miss the previous mark of 4.5% by much.
One would think a 102.9 reading on January consumer confidence would lift the markets, considering that it was almost 10 points higher than in December, but this was not the case. New home sales in December jumped to an annual rate of 481K, beating both the prior month and the projected estimates. In addition, Caterpillar experienced a decline in construction in China, which sent 4thquarter profits down 25% from a year ago. These reports and others had a negative effect on Wall Street. The closing numbers for Tuesday were horrible. The Dow slid 291.49 points, or 1.65%. The Nasdaq fell by 90.27 points, or 1.89%, and the S&P 500 dropped 27.54 points, or 1.34%. Surprisingly, the 10-year yield remained the same and closed at 1.83%.
Wednesday the only news was the FOMC rate decision, which wasn’t news at all. The Fed funds rate remains at 0.25%, a level that has been unchanged since December, 2008.
Wall Street had another exciting day, if you call losing your shirt in the middle of winter exciting. All of the indices were down again. The Dow dove 195.84 points, or 1.13%. The Nasdaq dropped 43.50 points, or 0.93%, and the S&P 500 went down by 27.39 points, or 1.35%. The 10-year yield also went down by 10 basis points to finish the day at 1.73%.
On Thursday jobless claims took the spotlight, and with good reason. Both initial claims and continuing claims fell sharply from the previous week. Initial claims for the week ended Jan. 24 were down to 265K -- compared to the 308K from the week before. Continuing claims for the week ended Jan. 17 were down by 71K, dropping from 2456K to 2385K. Pending home sales was the only disappointing report. They were down 3.7% from the prior 0.6% increase.
All of the stock indices rallied on Thursday. When the final bell rang, the Dow was up 225.48 points, or 1.31%, the Nasdaq gained 45.41 points, or 0.98%, and the S&P 500 went up by 19.09 points, or 0.95%. The 10-year treasury yield went up a bit to close at 1.77%.
Friday was the big day. First on the docket was Q4 GDP. This report stunned everyone when it came in at 5.0% in December. Unfortunately, that was a one-time wonder, compared with the actual 2.6% result. Estimates were at 3.2%. The other three reports varied in importance. The Q4 employment cost index (ECI) came in at 0.6%, which was just a hair under the previous 0.7% reading. The final two reports were pretty much on target. The Chicago PMI (purchasing managers’ index) jumped to 59.4 from 58.8, and the University of Michigan’s final consumer sentiment report for January posted a 98.1 -- close to expectations.
When the markets closed on Friday, however,all of the gains made on Thursday were lost. The Dow retreated 251.90 points, or 1.45%. It closed the week at 17,164.95. The Nasdaq slid 48.17 points, or 1.03%, and the S&P 500 dropped 26.26 points, or 1.30%. The 10-year treasury dropped to 1.68%, the lowest since May of 2013.
One would think that after the volume of reports we had last week, this week would be a piece of cake. Not so. There are 26 reports lined up and waiting, but not all of them, of course, are market movers.
Today starts off with personal income, personal spending, the PCE prices-Core, the ISM manufacturing index, and construction spending. Personal income for December is forecasted to be around 0.3%, a slight decrease from the 0.4% previously reported. Personal spending for December is estimated to decline by 0.2% compared with the 0.6% from the prior report. The PCE Core prices, which measures the prices paid by consumers for goods and services (minus food and energy prices) is expected to remain flat at 0.0%. In other words, inflation is non-existent at the moment. The ISM index on manufacturing in January should come in at about 55% -- close to its previous posting. Construction spending in December, however, is expected to hit 0.8% or 0.9% versus the previous -0.3% reading.
The only significant report tomorrow is factory orders in December, which could be worse than in November when they came in at -0.7%.
On Wednesday, feedback on employment changes began to filter in from the ADP payroll data for January. The report for December came in at 241K. The market forecasters are predicting 230K for January, and the guys are predicting 250K.
This will be followed by ISM services, which looks at activities in the service sector, e.g., hotels, restaurants and other service businesses. It has held steady at 56.5 and should continue to stay about the same.
Thursday we get the reports on initial and continuing jobless claims. Initial claims for the week ended January 31 are expected to go up to possibly 300K. This is a good-sized jump from the previous week’s total of 265K. Continuing claims for the week ended January 24 might decrease somewhat to 2375 from 2385.
Next we jump to the trade balance for December. It came in below $40B ($39B to be more exact) for the first time in several years in November. The market analysts expect a repeat in December although the analysts are predicting a balance in the neighborhood of $43.0B. The final reports on Thursday are on productivity and unit labor costs for Q4.
On Friday we get the non-farm payroll report which is predicted to go down from 252K to 235K for January. The unemployment report is expected to be unchanged at 5.6% nationally. The last report of the week addresses consumer credit for December. It is likely to show an increase in consumer credit debt for the month, which is consistent with holiday shopping. The number could go from $14.1B in November, to $16.0B in December.
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