Ferguson Wellman Capital Management is pleased to present our Outlook 2012 publication. To read click here or click on the image below.
Weekly Market Makers: Week Ending 1/13/12
by Shawn Narancich, CFA Vice President of Research
Macro Stocks finished the second week of 2012 with gains as key events gave investors plenty to ponder. Materials and financials have led the performance parade so far this year—just the opposite of what occurred in 2011. The risk-on trade worked again this week, not so much because of economic news domestically, but because of encouraging developments in Europe and China. Benchmark Treasury prices climbed (yields fell) alongside stocks, despite a weaker euro.
International Markets Bond yields in Italy and Spain dropped as they conducted successful debt auctions; despite record deposits sitting idly on the European Central Bank’s (ECB) balance sheet, evidence suggests that some cash from the ECB’s recently initiated term loan bank facility has found its way into the sovereign debt market. French leader Sarkozy and his German counterpart Merkel appeared to make some progress in fleshing out terms of the enhanced fiscal integration framework announced in November, providing cover for the ECB to continue buying Italian and Spanish debt in the secondary market. These developments bode well for Europe despite breaking news that S&P has downgraded the sovereign-debt ratings of Italy and France, kicking the latter off its AAA pedestal. Market reaction was modest as these downgrades were largely expected following the ratings review warning shots that S&P fired across these countries’ bow in December. While fiscal austerity will continue to burden the European economy, staving off a break-up of the euro and limiting the severity of recession there is probably the best we can hope for at this point.
Meanwhile, China reported that its inflation rate in December fell to 4 percent. This was an encouraging data point that should help pave the way for this emerging market giant to continue easing monetary policy to combat a slowing economy. With U.S. cyclical sectors leading the way so far this year, China is beginning to feel like a global put option for equity investors.
Domestic Economy Here at home, retail sales undershot estimates as both Tiffany and Williams Sonoma pre-announced disappointing earnings. The fact that a couple retailers missed numbers because they lowered prices to drive traffic is not as surprising as these two retailers serve an upper income demographic that has been a sweet spot of retailing so far this cycle. Meanwhile, initial claims for unemployment rose after several weeks of better numbers and the Fed’s Beige Book confirmed a lift in fourth quarter GDP.
Earnings season kicked off this week as well, with both Alcoa and JP Morgan reporting numbers that were uninspiring, but not unexpected. We’ll see more of the major money center banks reporting next week as the floodgates of fourth quarter earnings open wide. Estimate revisions have been mostly negative ahead of earnings reports, which could be bullish for stocks if numbers end of being too conservative during a period when the U.S. economy has definitely picked up its pace.