MONTHLY QUOTE
“No
clever arrangement of bad eggs ever made a good omelet.” –
C.S. Lewis
MONTHLY TIP
One
simple formula for long-term financial success – always pay
yourself (in savings, counting all forms) as much as you pay
Uncle Sam in income taxes. Let me show you how to diversify your
risks while doing so. – Jim
Hecker
MONTHLY
RIDDLE
You
walk into a restaurant and the wood beneath your feet is neither
straight nor smooth – even though the manager tells you the
wood was just laid down the night before. The pieces are uneven,
yet no one trips or falls. What kind of wood is on the floor of
this restaurant?
Last month’s riddle:
Add missing vowels to these three trios of letters to get the six-letter names of three different countries: PNM, MXC, KWT
Add missing vowels to these three trios of letters to get the six-letter names of three different countries: PNM, MXC, KWT
Last month’s answer:
Panama,
Mexico, Kuwait.
THE
MONTH IN BRIEF
Turmoil in the Middle East didn’t stop U.S. stocks from posting a sizable January advance. The S&P 500 rose 2.26% on the month and the Dow and NASDAQ posted strong gains as well. We received encouraging news about home sales, retail sales, manufacturing and service sector growth and personal spending. There was a real sense that things were improving for American consumers and corporations.1
Turmoil in the Middle East didn’t stop U.S. stocks from posting a sizable January advance. The S&P 500 rose 2.26% on the month and the Dow and NASDAQ posted strong gains as well. We received encouraging news about home sales, retail sales, manufacturing and service sector growth and personal spending. There was a real sense that things were improving for American consumers and corporations.1
DOMESTIC
ECONOMIC HEALTH
The big news to come our way in January was the big leap in consumer spending for December. We had the sense late in 2010 that consumers were readily opening their wallets and billfolds; the Commerce Department’s report of the 0.7% monthly gain in the category confirmed it. The Commerce Department also announced that consumer spending rose a very healthy 4.4% in the fourth quarter of 2010.2
The big news to come our way in January was the big leap in consumer spending for December. We had the sense late in 2010 that consumers were readily opening their wallets and billfolds; the Commerce Department’s report of the 0.7% monthly gain in the category confirmed it. The Commerce Department also announced that consumer spending rose a very healthy 4.4% in the fourth quarter of 2010.2
January
also brought a 0.4% drop in the jobless rate, but the news wasn’t
as good as it seemed. Unemployment did fall to 9.4% for December
as 453,000 people stopped receiving federal benefits, but only
103,000 people found new non-farm jobs. So the drop in the
unemployment rate largely reflected job seekers giving up the
hunt. Perhaps this was one of the reasons that the two major
consumer confidence polls came to a split decision last month:
the University of Michigan’s poll declined by 0.3 points in
January, while the Conference Board’s poll reached an 8-month
peak of 60.6.3,4,5
The
Institute for Supply Management’s closely watched purchasing
managers indexes showed further growth. The December service
sector index rose 2.1% to 57.1; the January manufacturing index,
which came out at the start of February, rose 2.3% to a mark of
60.8. A 0.6% December gain in retail sales corresponded with the
jump in personal spending.6,7,8
Inflation
picked up in December. The Consumer Price Index rose 0.5%, the
biggest advance in 18 months – but core CPI advanced only 0.1%.
The federal government’s Producer Price Index rose 1.1% for
December with a 0.2% core PPI gain. Energy prices spurred much of
the advances in both indexes. While overall durable goods orders
fell 2.5% for December, they were actually up 0.5% with aircraft
orders factored out.9,10,11
GLOBAL
ECONOMIC HEALTH
At January’s end, the European Financial Stability Facility (the rescue fund set up by the European Union last year) appeared to be shifting focus. The EU was said to be near an agreement by which the EFSF would buy bonds directly from fiscally troubled nations rather than offer bailout loans. At the end of January, the European Central Bank actually took a break from buying bonds from Greece, Ireland and Portugal. The ECB had already bought €76.5 billion of those bonds from May 2010 through January, and the EFSF is scheduled to be dismantled in 2013. EU Economic and Monetary Commissioner Olli Rehn commented that when it came to the sovereign debt crisis, “the worst could be over.” In other positive news, Germany’s jobless rate diminished to an 18-year low last month and the Markit Economics PMI hit a 9-month peak.12,13
At January’s end, the European Financial Stability Facility (the rescue fund set up by the European Union last year) appeared to be shifting focus. The EU was said to be near an agreement by which the EFSF would buy bonds directly from fiscally troubled nations rather than offer bailout loans. At the end of January, the European Central Bank actually took a break from buying bonds from Greece, Ireland and Portugal. The ECB had already bought €76.5 billion of those bonds from May 2010 through January, and the EFSF is scheduled to be dismantled in 2013. EU Economic and Monetary Commissioner Olli Rehn commented that when it came to the sovereign debt crisis, “the worst could be over.” In other positive news, Germany’s jobless rate diminished to an 18-year low last month and the Markit Economics PMI hit a 9-month peak.12,13
Many
Asian economies were celebrating rapid growth, while also
contending with the rising prices that came with it. In January,
South Korea noted a 46% year-over-year increase in exports, but
its consumer price index posted a year-over-year gain of 4.1%
(the year-over-year gain had been 3.5% in December). Indonesia
was facing 7% inflation. A hint of cooling came from China, where
the China Federation of Logistics and Purchasing index fell to
52.9 from 53.9 a month earlier. Japan actually had its credit
rating downgraded by Standard & Poor’s.14
WORLD
MARKETS
Call it a relief rally, call it renewed optimism: many European indices did well last month, even those in fiscally troubled countries. The German DAX rose 2.2% and the French CAC 40 advanced 5.4%. The Dow Jones Stoxx 600 was up 1.5% last month, putting it up 7.0% across December and January. Spain’s Ibex rebounded 10.0% in January while the benchmark indices of Greece and Italy respectively rose 12.7% and 9.4% for the month. Notable January losers included the FTSE 100 in Great Britain (-0.6%) and the Sensex in India, which suffered a correction (-10.6%) thanks to pessimism over renewed inflation and rising interest rates. At the end of the month, it had fallen 12.4% from November highs. The MSCI World Index rose 2.19% last month while the MSCI Emerging Markets index fell 2.81% (measuring performance in U.S. dollar terms).15,16,17,18
Call it a relief rally, call it renewed optimism: many European indices did well last month, even those in fiscally troubled countries. The German DAX rose 2.2% and the French CAC 40 advanced 5.4%. The Dow Jones Stoxx 600 was up 1.5% last month, putting it up 7.0% across December and January. Spain’s Ibex rebounded 10.0% in January while the benchmark indices of Greece and Italy respectively rose 12.7% and 9.4% for the month. Notable January losers included the FTSE 100 in Great Britain (-0.6%) and the Sensex in India, which suffered a correction (-10.6%) thanks to pessimism over renewed inflation and rising interest rates. At the end of the month, it had fallen 12.4% from November highs. The MSCI World Index rose 2.19% last month while the MSCI Emerging Markets index fell 2.81% (measuring performance in U.S. dollar terms).15,16,17,18
COMMODITIES
MARKETS
Gold did poorly, oil did decently, and tin and cotton did amazingly well. Gold futures fell 6.1% last month, the first monthly loss for the precious metal since July 2010. In fact, it was gold’s poorest month since December 2009 and its poorest January since 1997. Silver also took a hit as investors turned back toward stocks and funds – it fell 8.9% last month. However, palladium was up 2.1% in January (for a 7-month winning streak) and platinum prices rose 1.3%. Tin prices rose 10.2% on the month, and copper pushed toward an all-time.19,20,21
Gold did poorly, oil did decently, and tin and cotton did amazingly well. Gold futures fell 6.1% last month, the first monthly loss for the precious metal since July 2010. In fact, it was gold’s poorest month since December 2009 and its poorest January since 1997. Silver also took a hit as investors turned back toward stocks and funds – it fell 8.9% last month. However, palladium was up 2.1% in January (for a 7-month winning streak) and platinum prices rose 1.3%. Tin prices rose 10.2% on the month, and copper pushed toward an all-time.19,20,21
Elsewhere,
crude oil pulled off a 0.9% gain to get to $92.19 per barrel at
the close on January 31. Cotton soared 16.0% and wheat prices
gained 5.9% in January. The U.S. Dollar Index lost 1.5% for the
month.19,22,23
REAL
ESTATE
New and existing home sales continued rebounding. Residential resales were up 12.3% for December, according to the National Association of Realtors. While the median sale price fell 1.0%, the excess inventory was also reduced to 8.1 months of supply compared to 9.5 months in December. The NAR also said pending home sales were up 2.0% in December – not quite the 4.5% gain analysts had expected, but still nice. As for new home sales, the Census Bureau noted that they jumped 17.5% in December. (Sales of new and existing homes were still respectively down 7.6% and 4.2% from a year ago.)24,25
New and existing home sales continued rebounding. Residential resales were up 12.3% for December, according to the National Association of Realtors. While the median sale price fell 1.0%, the excess inventory was also reduced to 8.1 months of supply compared to 9.5 months in December. The NAR also said pending home sales were up 2.0% in December – not quite the 4.5% gain analysts had expected, but still nice. As for new home sales, the Census Bureau noted that they jumped 17.5% in December. (Sales of new and existing homes were still respectively down 7.6% and 4.2% from a year ago.)24,25
Back
on December 30, Freddie Mac found average interest rates on
30-year FRMs at 4.86%, 15-year FRMs at 4.20%, 5-year ARMs at
3.77%, and 1-year ARMs at 3.26%. By January 27, those rates had
declined or held steady as follows: 30-year FRMs, 4.80%; 15-year
FRMs, 4.09%; 5-year ARMs; 3.70%; 1-year ARMs, 3.26%.26,27
LOOKING
BACK…LOOKING FORWARD
The S&P 500 recorded its first positive January since 2007 and its best January percentage climb since 2006. The DJIA had its best January in 14 years. At the end of the month, this was how things looked.1
The S&P 500 recorded its first positive January since 2007 and its best January percentage climb since 2006. The DJIA had its best January in 14 years. At the end of the month, this was how things looked.1
| % CHANGE |
Y-T-D
|
1-MO
CHG
|
1-YR
CHG
|
10-YR
AVG
|
DJIA
|
+2.72
|
+2.72
|
+16.75
|
+0.92
|
NASDAQ
|
+1.78
|
+1.78
|
+24.36
|
-0.26
|
S&P
500
|
+2.26
|
+2.26
|
+18.08
|
-0.58
|
| REAL YIELD |
1/31
RATE
|
1
YR AGO
|
5
YRS AGO
|
10
YRS AGO
|
10
YR TIPS
|
1.08%
|
1.29%
|
2.00%
|
3.52%
|
Sources:
online.wsj.com, bigcharts.com, treasury.gov, treasurydirect.gov -
1/31/111,28,29,30
Indices
are unmanaged, do not incur fees or expenses, and cannot be
invested into directly.
These
returns do not include dividends.
While
Wall Street kept a close eye on the situation in Egypt at the end
of January and the start of February, it wound up paying more
attention to domestic economic indicators and earnings reports –
the DJIA suffered only one triple-digit hit from the crisis. If
stocks can suddenly navigate around a major geopolitical event
with such ease, will that bode well for the rest of the year?
While past performance is no barometer of future success, the
historical data is encouraging: when the S&P 500 has posted a
January gain, it has registered a yearly gain 81% of the time
since 1928 (with an average yearly advance of 12.91%). The mood
was more bullish than bearish at the beginning of February, with
the Dow topping 12,000, the NASDAQ over 2,700 and the S&P 500
over 1,300.31
UPCOMING
ECONOMIC RELEASE
Across the balance of February, we will get reports and releases concerning the January unemployment rate (2/4), December wholesale inventories (2/10), the first University of Michigan February assessment of consumer sentiment (2/11), January retail sales and December business inventories (2/15), January’s PPI, industrial output and housing starts (2/16), January’s CPI and Conference Board LEI (2/17), December’s Case-Shiller home price index plus the Conference Board’s look at consumer confidence in January (2/22), January existing home sales (2/23), January new home sales and durable goods orders (2/24), a final look at consumer sentiment in February from the University of Michigan (2/25), and January consumer spending and pending home sales (2/28).
Across the balance of February, we will get reports and releases concerning the January unemployment rate (2/4), December wholesale inventories (2/10), the first University of Michigan February assessment of consumer sentiment (2/11), January retail sales and December business inventories (2/15), January’s PPI, industrial output and housing starts (2/16), January’s CPI and Conference Board LEI (2/17), December’s Case-Shiller home price index plus the Conference Board’s look at consumer confidence in January (2/22), January existing home sales (2/23), January new home sales and durable goods orders (2/24), a final look at consumer sentiment in February from the University of Michigan (2/25), and January consumer spending and pending home sales (2/28).
*Registered Representative and Financial Advisor of Park Avenue Securities LLC PAS.
Securities products/services and advisory services offered through PAS a registered Broker-dealer and investment advisor.
Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY.
PAS is an indirect wholly owned subsidiary of Guardian.
Wealth Design Group is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC.
This
material was prepared by Peter Montoya Inc., and does not
necessarily represent the views of the presenting party, nor
their affiliates. This information should not be construed as
investment, tax or legal advice. The Dow Jones Industrial Average
is a price-weighted index of 30 actively traded blue-chip stocks.
The NASDAQ Composite Index is an unmanaged, market-weighted index
of all over-the-counter common stocks traded on the National
Association of Securities Dealers Automated Quotation System. The
Standard & Poor's 500 (S&P 500) is an unmanaged group of
securities considered to be representative of the stock market in
general. It is not possible to invest directly in an index. NYSE
Group, Inc. (NYSE:NYX) operates two securities exchanges: the New
York Stock Exchange (the “NYSE”) and NYSE Arca (formerly
known as the Archipelago Exchange, or ArcaEx®, and the Pacific
Exchange). NYSE Group is a leading provider of securities
listing, trading and market data products and services. The New
York Mercantile Exchange, Inc. (NYMEX) is the world's largest
physical commodity futures exchange and the preeminent trading
forum for energy and precious metals, with trading conducted
through two divisions – the NYMEX Division, home to the energy,
platinum, and palladium markets, and the COMEX Division, on which
all other metals trade. The DAX 30 is a Blue Chip stock market
index consisting of the 30 major German companies trading on the
Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based,
modified capitalization-weighted index of 40 companies listed on
the Paris Bourse. With a fixed number of 600 components, the
STOXX Europe 600 Index represents large, mid and small
capitalisation companies across 18 countries of the European
region. The IBEX 35 is the benchmark stock market index of the
Bolsa de Madrid, Spain's principal stock exchange.
The
Athens Stock Exchange General Index is a capitalization-weighted
index of Greek stocks listed on the Athens Stock Exchange. The
FTSE MIB is the primary benchmark Index for the Italian equity
markets. Capturing approximately 80% of the domestic market
capitalization, the Index is comprised of highly liquid, leading
companies across ICB sectors in Italy. The FTSE 100 Index is a
share index of the 100 most highly capitalized companies listed
on the London Stock Exchange. The BSE Sensex or Bombay Stock
Exchange Sensitive Index is a value-weighted index composed of 30
stocks that started January 1, 1986. The MSCI World Index is a
free-float weighted equity index that includes developed world
markets, and does not include emerging markets. The MSCI Emerging
Markets Index is a float-adjusted market capitalization index
consisting of indices in more than 25 emerging economies. The US
Dollar Index measures the performance of the U.S. dollar against
a basket of six currencies. Additional risks are associated with
international investing, such as currency fluctuations, political
and economic instability and differences in accounting standards.
All information is believed to be from reliable sources; however
we make no representation as to its completeness or accuracy. All
economic and performance data is historical and not indicative of
future results. Market indices discussed are unmanaged. Investors
cannot invest in unmanaged indices. The publisher is not engaged
in rendering legal, accounting or other professional services. If
assistance is needed, the reader is advised to engage the
services of a competent professional.
Citations.
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[1/31/11]
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[2/2/11]
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